The primary aim of this report is to explain fundamental of strategic management and its application within the current business world. First part of the report critically analysis what strategy is and also it briefly describe the level of strategy.
Afterwards, it focuses on the concept of strategic management and gives an example of strategic management practice in Coca Cola Company. Then, the report gradually describes the strategic management process and the strategic management tools which are used by the business organization in day to day activities such as SWOT analysis and PESTLE analysis, it gives example of SWOT analysis performed by the market research organization in Samsung Inc.
Finally, this report concentrates on the perception of leadership and the importance of leadership in strategic management.
The business world has become complex because of the continuous change in technology, increasing competition and so on. The current competition of the business world has forced people to be worry about survival. Managers started thinking how to face all of these changes and According to Martin & Thompson (2012) strategy is all about how to handle all of these changes while Orcullo (2007) mentioned strategy as top level management plan which help an organization to attain its goals, it helps an organization to master an existing project better as well as making choice of another project efficiently (Mazzucato, 2006). Furthermore, where an organization want to reach after a long period of time, which market to enter and even if it enters what are the forces which will have an effect on its daily activities and how organization is going to manage all of it is called strategy (Johnson, et.al,. 2008). According to Armstrong & Tina (2005) strategy deals with all of the issues which can be an obstacle for the survival of organization.
Level of strategy
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Every organization is hierarchical; therefore it is not strange to find out that strategic management is also hierarchical. Generally, there are three level of strategy; these are corporate, business and functional. In corporate strategy manager decide which company to compete with and what the value creation activities it should perform (Hills & Jones, 2012). Business level strategy basically answer the question how we should compete (Caroll & Buchhotlz, 2008). Functional activities include how a firm should address all functional activities together such as marketing, finance etc. The diagram below shows the level of strategy
Figure: three level of strategy
So many economists have argued that most manager of the organization does not know what strategy is as it depends on the types of business and vary according to it. The strategy which is used by H&M may not same as River Island; if it is same then it is not an effective strategy as per Henry (2008) strategy allows an organization to achieve competitive advantage, it helps an organization to be unique in the market place.
As a manager of an organization you have following question like where I want to take my business in next 5 years, how big my business should be?, what is the way to beat competitors?. Strategic management answers all of these questions (Partridge, 2005). It can be defined as continuous process which guides a manager to form business vision, mission, analyses the strength, weakness, threat etc. within the external as well as internal environment (Ireland et al., 2009). As per Kazmi (2008) the process of formulating, controlling, evaluating, and implementing organization's strategy is called strategic management.
Strategic management deals with the Strategic Intent of the organization. Strategic intent generally refers that how an organization wants to use its resources, core competence and capabilities?(Gomez-Mejia & Balkin, 2012). It also plays an important role for mission of the organization; mission statement expresses the objective of an enterprise, it answers the question what business the organization is in and Why they are in this business (Kinicki & Williams, 2011).
Strategic management is practiced by every organization in the world; it will be hard to find out an organization without strategy, it has become the way of business life. For example, Coca cola one of the world biggest drink company who has get into the top of the business world by selecting an appropriate strategy. The strategy of coca cola is to maximize its profitability and growth for creating value of stake holder (Coca cola, 2011) and to achieve this goal coca cola simply concentrate on customer's value, implement multi-segmentation strategy, they plan pricing throughout variety distribution channel. Every business organization think where they want to for example coca cola had an intention to set up its business globally and according to survey three quarters of the company's income come from international operation (Zyman, 2007).
Process of strategic management
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Strategic management is more concerned about long time decision of the organization, in generally strategic management consists of four phases' (Morden, 2007) these are:
Strategic analysis and planning
Strategic formulation and strategic decision making
Strategic analysis and planning
Planning is very basic part of an individual's life; it is described as a process through which an individual formulate what he is willing to do, identify one or more relevant goals and take actions to achieve these goals (Simerson, 2011). For any business who wants to be successful in the market; it is mandatory to have a strategic plan. Plan is defined as what a company want to do in the future whereas strategic planning is defined as "the process of developing a shared vision of your organization's future and deciding upon the major steps you will take to move the organization in that direction" (Morrision, 2012) . To make a strategic plan a manager should have strategic thinking and when it comes to strategic thinking a manager should take consider of so many things such as understanding the Strategic planning assists to organize current business situation, determining future possibilities (Simerson, 2011). However, strategic analysis helps an organization to identify its internal strength, weakness as well as external environment vice versa (Morden, 2007). Strategic analysis helps to plan effectively and efficiently. Strategic analysis and strategic planning are interrelated. Strategic planning usually takes following steps:
Figure: Strategic planning process (MBA, 2010)
Strategic planning is called as backbone of strategic management well it is not everything of strategic management but it is a major procedures which is done by strategic manager (Steiner, 2010).
Strategic formulation and strategic decision is essential to establish organization's mission, vision as well as strategy. According to Grattan (2012) the way strategy is formulated is mysterious. Strategy formulation indicates the way of selecting most appropriate course of action so that organization can achieve vision, goal as well as objective (Management Study Guide, 2013). Strategy formulation is primary process of answering strategic questions like where we want to reach in next 10 years and how we can go to our destination. It is necessary to do some extra home work while doing strategic formulation as manger take so many decision in this steps. There are many factors which affect on strategy formulation for example internal and external environment of the organization, the mission and vision objective of the organization (Alkhafaji, 2003). Basically there are six steps in strategy formulation these are:
Figure: Strategy formulation process
Whether you are thinking about starting a new business or talking about an existing business, the first things that a business organization should do is to select an appropriate strategy. The strategy which you select is pretty much important as it will have an effect on your future decision. The moment when a manger chooses strategy he or she needs to make sure that it is comfortable and compatible with the business (Company, 2012). Therefore, selecting a strategy is time consuming; it generally refers to the choosing of alternatives. For instant, does the organization want to stay within the home country or it wants to go globally.
To put it easy it can be said that strategy implantation is the process of putting strategy in practice. Implication of strategy is important because strategy is defined as a pattern of action (Thompson & Strickland, 2003).Therefore without implication it does not keep any meaning. Strategy implementation means the way of organizing resources of the enterprise to support selected strategy. According to Steiner implication process of strategy covers almost every important aspect of business for example management appraisal, motivation; compensation etc. while Higgins mentioned it involves directing, planning, organizing even leading (Barnat, 2012). Griffin (2008) also described that strategy implementation is a process through which strategy are operational-zed. Peter and Certo proposed that strategy implementation process consists of five phases these are:
Figure: strategy implementation process
Tools of Strategic management
There are various tools which are used by strategic manger to be ahead of the game or to play the existing game better. These are core of the strategic manger; the most common strategic tools are SWOT and PESTAL analysis. A brief description and application of these two tools are described below:-
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The word SWOT stands for Strength, Weakness, Opportunity and Threats. According to Griffin (2008) a strategic manager uses SWOT to find out firms strength, weakness, opportunity and threat. For any organization that is willing to improve overall quality of the organization it is essential to do SWOT analysis (Dana, 2012). SWOT analysis concentrates on analyzing company's internal as well as external environment because basically firms' strength and weakness comes from internal environment of it while threat and opportunity are usually come from external environment. Evaluating an organization's strength and weakness, opportunity and threats is mandatory because based on this examine an enterprise can take strategic decision to avoid threats, work out on the weakness and making use of opportunity (Nieschlag et al. 2002). For example, Samsung one of the largest electronic device supplier, was first established in 1969 (Chang, 2011) but they started thinking to diversify their product range into variety sectors. Therefore they diversified them into electronic devices, heavy equipment etc. They are all over the world now and have got popularity for selling smart phone. When Samsung moved to India their strategy for smart phone was; smart phone for everyone, the strength of Samsung was strong technology, support multiplatform, while threat and weakness was patent war with apple inc. and software is deadly weakness of them (Anonymous 2012).
PESTLE analysis is another strategic tools quite often used by the strategic manger, It focuses on the factors which has got affect on daily activities of the business. These factors are political, economical, social, technological, legal and environmental (Allen, 2002).
Political factors which can affect the activities of business are tax policy; labor law etc. economical factors are exchange rate, inflation, interest rate etc. social factors are age, growth rate etc. technological factors are latest technology, R&D activities. Environmental or ecological factors generally means sudden change in weather or climate, legal factors are health and safety law, employment law etc.
FIGURE: STEEP ANALYSIS (Bensoussan & Fleisher, 2009)
Strategic leadership or Importance of leadership in Strategic management
A leader is a person who protects and gives direction to the people, co-ordinates their activities and checks their excesses. While a leader refers to a person, leadership is a process whereby a group of people are co-ordinate, influenced and managed in such a way that there is understanding between the leaders and the led. In other word, Leadership is a process where an individual influence a group of individuals toward a common goal (Northouse, 2012). There are many definition of leadership; it is easy to recognize but hard to define or explain. For example, Warren Bennis and Burt Nanus states Leadership is like love we cannot define it or teach it but we can always identify it, they also mentioned leadership is like beauty you cannot define it but you know when you see it (Ricketts & Ricketts, 2011). The meaning of leadership vary person to person, people describe leadership according to their individual perspective, it is defined as an art of influencing a group of people, to follow certain course of action, the art of controlling them and getting best out of them(Adair, 2005).
Strategic manager looks to achieve a long term goal and a leader also looks to acquire long term goal. Strategic management help an organization to identify what they intend to achieve and how they will accomplish whereas leadership concerned more about to motivate followers of an organizations in an effective manner to get onto its target. The key success of a business organization depends on two main factors good leadership and effective management. Good leadership can be attained by practice while strategic management is learned through study. Furthermore, strategic leadership is the process of using strategic management's concept in practice (Morrill , 2010).Even though, the term Strategy and Leadership is different from each other but it is still linked or depends on each other a leadership without management will only give you a short time pleasure and you're an organization will fall as long as it succeed similarly if an organization have strategic plan but not a good leader it won't be able to survive for long time because it's like you got a car but not a qualified driver. A leader set direction make people move toward a common dream while manager design system, set goal, keep track of performance generally make sure things get done.
An organization needs both knowing where to go and how to go. When strategic plan is in action, the leadership becomes important, it gives direction is well on its way to make it real. If strategy is defined as pattern of choices which aims to achieve a sustainable competitive advantage then strategic leadership involves focusing on those choices which enhance the health and well-being of organization over long time. Strategic leader does not only develop vision, mission; it also thinks and review organization's direction to make sure that it's on the right path as the competitive advantage change all the times(Pisapia, 2009). Strategic management is all about planning, controlling of organizations activities so that the missions and goals of a particular organization are met effectively; it also involves motivation of the employees and stakeholders for the success of the organization and without leadership All these activities are impossible, the duty of leaders are to setting the goals of an organization and making decisions or select a best way of achieving them. A leader organizes the resources and staff group activities in the best way possible for proper performance. The leaders correct and monitor the activities going on in the organization to ease the process of goal attainment. It is the duty of leaders to motivate the employees so that they can perform their duties with the interest of the organization at heart. In a nutshell, we can say strategic management is plan or action and strategic leader is the person who makes it effective. So, both are important for the success for an organization.
It will be hard to find out an organization who does like to run business for short time or who does not dream for serving ages, as everyone love to last for long they need something to cope with the changes of business environment (external as well as internal), they need to be updated to meet the customers' needs and wants. So, the action which is taken by an organization to be in the market for long, long, time is called strategy and the person who runs or lead this process effectively is known as a leader. Therefore, the existence of strategic management as well as strategic leader is inevitable; one cannot live without the other, a strategic management becomes useful when it's combined with a good leadership. Successful strategic management encompasses a number of disciplines ranging from an assessment of personality traits, the organizations' profile all the way to strategic management theories. Careful selection of each of these components will together formulate the strategic plan which will assist leaders in achieving the goals established by the organizations top management and stakeholders. In a nutshell, strategic management helps an organization life easier and assist organization to live for long.