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The strategic management process means defining the organizations strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance.
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises it's competitors; and fixes goals to meet all the present and future competitor's and then reassesses each strategy.
A strategy is a pattern of purposes, policies, programmers, actions, decisions and/or resource allocations that define what an organization is, what it does and why it does it. Strategies can vary by level, function and time frame.
Strategy formation creates strategy, designing new businesses and organizations to carry out those businesses. Formation involves exploration, the search for new advantages and business possibilities. Strategy formation creates a theory of business and its accompanying hypotheses. Strategy formation, or creation, is an aspect of strategic management.
One of the most influential people in the arena of strategy is Michael Porter. His very popular Five Forces Model in 1980 focused strategy formulation on 'coping with competition' (Porter, 1991, 11). This has been an unduly limiting view of strategy formulation, which to a great extent has limited the effectiveness of the field of strategic managemen
""Strategy formation is judgmental designing, intuitive visioning, and emergent learning; it is about transformation as well as perpetuation; it must involve individual cognition and social interaction, cooperation as well as conflict; it has to include analyzing before and programming after as well as negotiating during; and all of this must be in response to what can be a demanding environment. Just try and leave any of this out and see what happens!"" (Mintzberg, 1998, pp 372-373).
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The key components of 'strategic formulations are as follows:
Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.
Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies.
Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organization's chosen strategy into action. Strategy implementation includes designing the organization's structure, distributing resources, developing decision making process, and managing human resources.
Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it's implementation meets the organizational objectives.
Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.
Vision: outlines what the organization wants to be, or how it wants the world in which it operates to be (an "idealised" view of the world). It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty."
Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its vision. For example, the charity above might have a mission statement as "providing jobs for the homeless and unemployed".
Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life".
Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.
Many people mistake the vision statement for the mission statement, and sometimes one is simply used as a longer term version of the other. However they are meant] to be quite different, with the vision being a descriptive picture of a desired future state, and the mission being a statement of a business rationale, applicable now as well as in the future. The mission is therefore the means of successfully achieving the vision.
For an organisation's vision and mission to be effective, they must become assimilated into the organization's culture. They should also be assessed internally and externally. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment - which includes all of the businesses stakeholders - is valuable since it offers a different perspective. These discrepancies between these two assessments can provide insight into their effectiveness.
A vision statement is a declaration of where you are headed-your future state - to formulate a picture of what your organization's future makeup will be, and where the organization is headed.
STRATEGY PLANNING PROCESS
There are many approaches to strategic planning but typically one of the following approaches is used:
Situation - evaluate the current situation and how it came about.
Target - define goals and/or objectives (sometimes called ideal state)
Path / Proposal - map a possible route to the goals/objectives
Draw - what is the ideal image or the desired end state?
See - what is today's situation? What is the gap from ideal and why?
Think - what specific actions must be taken to close the gap between today's situation and the ideal state?
Plan - what resources are required to execute the activities?
Among the most useful tools for strategic planning is SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). The main objective of this tool is to analyze internal strategic factors, strengths and weaknesses attributed to the organization, and external factors beyond control of the organization such as opportunities and threats.
Other tools include:
Balanced Scorecards, which creates a systematic framework for strategic planning;
Scenario planning, which was originally used in the military and recently used by large corporations to analyze future scenarios.
PEST analysis (Political, Economic, Social, and Technological)
STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors)
EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).
ATM Approach (Antecedent Conditions, Target Strategies, Measure Progress and Impact). Once an understanding of the desired endstate is defined, the ATM approach uses Root Cause Analysis (RCA) to understand the threats, barriers, and challenges to achieving the endstate. Not all antecedent conditions identified through RCA are within the direct and immediate control of the organization to change. Therefore, a review of organizational resources, both human and financial, are used to prioritize which antecedent conditions will be targeted. Strategies are then developed to target the prioritized antecedent conditions. Linking strategies to antecedent conditions ensures the organization does not engage in activity traps: feel good activities that will not lead to desired changes in the endstate. Once a strategy is defined then performance measures and indicators are sought to track progress toward and impact on the desired endstate.
When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the external environment as well as the strengths and weaknesses of the organizations.
There are several factors to assess in the external situation analysis:
The regulatory environment
It is rare to find all seven of these factors having critical importance.
Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve them. The goal of strategic planning mechanisms like formal planning is to increase specificity in business operation, especially when long-term and high-stake activities are involved
Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.
Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement.
One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization.
Various business analysis techniques can be used in strategic planning, including SWOT analysis, PEST analysis, STEER analysis, and EPISTEL SYSTEM:
CHARACTERISTICS OF STRATIGIC PLANNING
Strategic decisions are the decisions that are concerned with whole environment in which the firm operates the entire resources and the people who form the company and the interface between the two.
Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others.
Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities.
Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about.
Strategic decisions involve a change of major kind since an organization operates in ever-changing environment.
Strategic decisions are complex in nature.
Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of risk.
Strategic decisions are different from administrative and operational decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions. Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is a strategic decision which is achieved through operational decision of reducing the number of employees and how we carry out these reductions will be administrative decision.
The differences between Strategic, Administrative and Operational decisions can be summarized as follows-
Strategic decisions are long-term decisions.
Administrative decisions are taken daily.
Operational decisions are not frequently taken.
These are considered where The future planning is concerned.
These are short-term based Decisions.
These are medium-period based decisions.
Strategic decisions are taken in Accordance with organizational mission and vision.
These are taken according to strategic and operational Decisions.
These are taken in accordance with strategic and administrative decision.
These are related to overall Counter planning of all Organization.
These are related to working of employees in an Organization.
These are related to production.
These deal with organizational Growth.
These are in welfare of employees working in an organization.
These are related to production and factory growth.
BENEFITS OF A BUSINESS STRATEGY PROCESS
The Business Strategy Process fulfils several important purposes in the company:
1) Identifies industry changes and key external trends
2) Indicates the company's future direction, strategy and business model
3) Secures a common understanding and commitment in the management team
4) Creates a pro-active organisation
5) Informs employees, board, investors and others about the strategies and plans
This process results in a unique business model for the company and distinct business strategies.
Strategy and process plays an enormous role in professional work and is part of the business organizations. With out strategy and planning an organization cannot be able to create a successful vision. For organizations appropriate direction it provides a better way of thinking and gives an opportunity towards success. By following the basic principles of strategy and planning, one can easily solve major problems.