The Importance of Strategic Management and Its Key Elements - Essay Example

Running Head The importance of strategic management and its key elements The Importance of Strategic Management and its Key Elements Strategic management was often considered as one of the main tools which help organizations to compete on the market and create strategic goals and competitive position. The business represents a unique market segment. This sector requires unique strategic goals and strategic thinking tools to compete on the market place. It is often asserted that the modern environment is so complex that it is impossible to capture reality with the aid of any formal model. Strategic management is a process geared at detecting environmental threats and turning them into opportunities. Thompson & Martin (2005) state that strategy is the process of deciding how to best position the organization in its competitive environment in order to achieve and sustain competitive advantage, profitably. Strategy is formed at both corporate level (what industries/markets should we operate in) and business unit level (in what segments should we compete - and how). In their research, Strategic Management: Awareness, Analysis and Change, they focus on corporate level strategic considerations. The pace of change has significantly increased in recent years and the competitive arena has enlarged, driven by, for example, larger international corporates with an appetite for new markets, reduced barriers to international trade, and technology. It is possible to say that it will be difficult to apply these strategies because they focus on the process of strategy and analysis of the environment but do not involve recommendations and clear structure of strategy development. Thompson & Martin (2005) summarize some of the key shifts' in strategic management. Both researches state that the structure of the industry will significantly effect the profit potential of the business operating in that industry. The strategy and actions of a business operating in the industry may improve or destroy the industry structure. Each business (and the relevant decision takers) must recognize and evaluate the impact, short term and long term, of actions taken on the overall industry structure and attractiveness. The resource based view of the firm is currently the dominant conceptual paradigm in strategic management, and as such would appear to offer great potential to the study of the modern organization (Dobson & Starkey 2004; Gardiner, 2005). It argues that under certain conditions a firm's unique bundle of resources and capabilities can generate competitive advantage (Cole, 1998). There are also related schools of thought that focus on the development of dynamic capabilities and knowledge as drivers of competitive advantage. Curiously, there has been little explicit attention given to the resource based view of the firm in the literature, though Pittengrew et al (2000) are recent exceptions. "The multi-business firm has the potential to create the efficient sharing and transfer of core competences across divisions so that the divisions can accommodate new strategic management tools" (Pittengrew et al 2000, p. 21t of the reason for this is again the level of analysis. The resource based view implicitly assumes that resources and capabilities are developed and held in a monolithic firm, whereas the reality in the organization is that some are likely to be held at a firm level while others are held at a corporate level. Thus, rather than simply analyzing corporate-level resources in terms of their potential for competitive advantage, the issue is more one of combining or leveraging them on a global basis. Strategic thinking is defined as the positioning of the firm vis--vis its competitors and its customers, and with regard to its underlying resources and capabilities. For Whittington (2000), strategy is about how those two components are brought together. The organization is a value-adding unit. Thus, it is important to realize that many of the customers and even competitors will be other units within the corporation. Again, this approach describes the process of strategy development bit does not concentrate on steps and stages of its implementation in modern environment. Pittengrew et al (2006) underline the role of strategic-based thinking in development of the marketing strategies. "The dynamic capabilities approach is a second foundation that underlies knowledge-based thinking. In the traditional economic vision of the firm, managers' decisions are based on a set of productive relations" (Pittengrew et al 2006, p. 142). Drejer (2002) and Clegg et al (2005) underline that strategy design begins by identifying variables relevant to a firm's strategic situation, along with their causal interrelationships. Changes in these variables can have potentially profound effects on performance. Some of the variables belong to a firm's external environment. Examples are the intensity of competition, emergence of new products and processes, government regulation, and international interest and currency rates. Changes in these and other variables determine a firm's performance over time. It is a manager's job to develop a good understanding of the causal linkages underlying a strategic situation. Scenario-driven planning can help managers anticipate the effects of future changes triggered in the external environment. Some changes in variables are within a firm's control, a consequence of prevailing operating policies and managerial decisions. Pulling and pushing on these internal levers can also affect the firm's performance. Similar ideas are developed by Pittengrew et al (2006) who state that strategic approach "help in breaking down communication barriers while increasing analogic thinking and related understanding, so that knowledge integration became more effective" (p. 157). To evaluate a change in strategy, its results must be anticipated and considered, along with changes in the business environment, with respect to matching resource capabilities, stakeholder concerns, and organizational goals. The analysis of strategic situations requires a comprehensive inquiry into the environmental causalities that result from competitive actions. Scenarios probe the combined consequences of environmental trends, changes in the firm's own strategy, as well as the moves of its current and future competitors. The Key success factors of strategic management are suitability, feasibility and acceptability. Logical incrementalism may help implementation, but it becomes a prescription for failure when the environment is shifting. Examples of such failures and reversals are abundantly documented in the business press. Rapid changes in information technology, competition, family structure, and other facets of society's culture systems are foisting metamorphoses on the business environment. They are forces that leave a litter of torn organizational charts and broken traditions in their wake. To others, environmental change represents a more beneficent maelstrom, a dynamic force that animates vibrant opportunities and infuses new life into tired organizational structures. But no matter how it is perceived, environmental change is a force that managers must deal with (Moore, 2001). According to Thompson & Martin (2005) existing mechanisms are not industry specific but relate to the velocity or rate of environmental change. Thompson & Martin point out that such diverse industries as aerospace, banking, and semiconductors have developed and used essentially the same strategic management systems. Each system is responsive to a particular velocity, which a firm, no matter in what industry, must confront. To choose the system a firm needs, first, the velocity of its environment is diagnosed. Second, its managers select the system appropriate for this velocity. Hence the prevalent emphasis is on the notion of environmental turbulence and its levels. Modern organizations are incredibly complex and continually try to adapt to changes in their environment. The technology of scenario allows discovering possible implications of a problematic structure. Through computed scenarios firms can define and analyze changes in strategy as concrete and observable phenomena rather than as metaphor. A strategic decision may be defined, in rational action terms, as a decision with the following characteristics: (1) long-term perspective creates a need for inter-temporal planning; (2) uncertain environment; (3) information needs to be collected in the most efficient and reliable manner; (4) irreversible commitment of resources; (5) determines the context in which future tactical (short-term) decisions are taken: the implications for tactical decisions need to be considered before strategic decisions are made; (6) inter-actions with other strategists: either competition, co-operation, or both (Thompson & Martin 2005). Covering the issue globally, Thompson & Martin (2005) remind that industry changes can be evolutionary or revolutionary. In the same vein, changes in strategy can be smoothly adaptive or creatively abrupt. The capability of managing abrupt changes cannot emerge from flimsy evidence and unplanned implementation. On the contrary, modern technology now provides us with ways to deal both with uncertainty and with change. The question of how often firms should or do undergo changes in strategy is a central debate in organizational theory regarding the effects of internal inertia, external, that is, environmental control of the firm (by stakeholder groups), and strategic choices over time (Moore 2001). According to one view, unless a firm modifies its orientation to the environment by altering its strategy making process drastically, it adjusts its strategy incrementally rather than through a fundamental change. The principal proponents of incrementalism are Quinn and Mintzberg. Quinn explains that strategy making is actually an incremental political process. Mintzberg points out that strategy might not always be consciously formulated, but gradually emerges from a pattern of incremental or small-scale decisions, that is, tactics (Mintzberg et al 2004). Pittengrew et al (2006) bypasses this subtlety by introducing the term changes in strategy to replace the term strategic change. Taking into account the nature of business and its complexity, strategists should pay a special attention to and external environment and complexity of the industry. Two main sources of complexity are identified. One is the uncertainty involved in long-term planning. It reflects the 'strategic' nature of certain decisions, such as those concerned with irreversible investments. There is a distinctive set of rational action modeling techniques that is available for analyzing such strategic decisions. Another source of complexity is connected with networks. Networks take both physical and social forms. A physical network comprises a set of production plants, distribution centers, and retail outlets (Clegg et al 2005). Coordination within a firm involves internal networks, which often take a hierarchical form, whereas coordination between firms involves external networks which typically take a 'flatter' form. Formal analysis of communication costs makes it possible to analyze what kind of networks will emerge to coordinate different types of activity. Popular perceptions of complexity may also be a response to a quickening pace of strategic change (Morton, 2002). The art of strategy design should begin with the recognition of environmental threats and their transformation into opportunities (Cole 1998). The first pillar of wisdom is an awareness of the firm's dependency on its environment. Firms must learn to act on Porter's five forces, namely, competitors, buyers, suppliers, substitute producers, and potential new entrants. A second move would be to engage actively in environmental scanning, building competitive intelligence systems beyond internal management information systems. In their responses to environmental challenges, firms are hampered by a variety of response barriers, such as entry, exit, and inertia barriers. These require keeping track of competitors' moves, resource requirements, and environmental opportunities (Morton, 2002). The strategic designers of the twenty-first century are far more outward-bound than the organizational designers of the fiftieth. They will have to scan the transnational business scene and to see well past the narrow task environment of a specific product line or line of business. They will have to devise ways to keep track of and to model environmental changes through triggering events and trends. This must be done carefully, to ensure that the various changes considered are compatible. Because there is no guarantee that scenario components are compatible, managers and planners must screen both their basic assumptions and the compatibility of their scenarios (Dobson & Starkey 2004). The world economy of today appears to be radically different from what it was only fifty years ago. It can be argued that radical changes call for radically new theories to explain them. A new brand of IB theory must be developed to meet the intellectual challenges of the new millennium, it may be said. Complexity provides an impressive range of novel jargon for describing change in the international business system (Moore, 2001). 'The economy is a dynamic self-organizing system based on co-evolving institutions' seems to be a profound statement, even though it says little more than that the economy is undergoing change (Mintzberg et al 2004). The resource side of strategy refers in this case to the internal resources and capabilities held by the organization that are deployed in the marketplace. Resources are defined here as the stock of available factors owned or controlled by the firm, and capabilities are a firm's capacity to deploy resources, usually in combination, using organizational processes to effect a desired end. Considering resources first, most tangible resources (plant, equipment, people) are held primarily at the corporate level, while most intangible resources (financial, organizational and reputational) are held at the firm level (Whittington, 2000; Thompson & Martin 2005). Firms that want to prosper must accept the idea that strategy design at the industry level will succeed if and only if it strengthens, or at least does not impair, strategic posture. They also have to accept the necessity of selecting the relevant milieu of important variables and relationships to be mapped on a case-by-case basis. These may not be best captured by simply going down the categories of a pre-established checklist (Whittington, 2000). Environmental scanning, mapping, and modeling are worthwhile, value-adding, but demanding business activities. When environmental uncertainty increases, so does the need not for more, but for more pertinent information. It is the quality of information that counts, not the quantity. It is precisely at this point that the information processing perspectives on strategy and organizational design often err (Thompson & Martin 2005). Their conventional control-driven prescriptions require firms to increase their information processing capacity, assuming that more information will reduce and thereby control environmental uncertainty (Thompson & Martin 2005). Environmental uncertainty also affects structure because more information must be processed among decision makers to achieve a given level of performance (Morton, 2002). In sum, dynamic and complex environments are more difficult to gauge and to model than complex but static ones. Strategic management is important because it helps companies to develop and facedown changes and respond effectively to rapid market fluctuations. Yet, most intractable are those fields that are both complex and dynamic; they are rightly termed discontinuous or turbulent environments. The main problem is that corporate-level managers are ill-equipped to do this because they do not understand the unique resources and capabilities in the organization, whereas managers have the knowledge, organizations should take a specula attention to internal and external resources, rapid changing environment and flexible planning process. Strategies should be more effective, in terms of identifying what it is that the business should be doing today and tomorrow in order to survive and prosper in the long run. he highly competitive nature of many markets and the likely future prospect of continued economic turbulence as national and global economic fortunes vary, requires that business managers continue to look for opportunities to improve performance. For this reason, organizations should concentrate on knowledge-based strategies and resources-based view to compete on the market. References Clegg, s., Kornberger,M., Pitsis.T.(2005) Managing and Organisations: an introduction to theory and practice, Sage, London. Cole, G. A. (1998), Strategic Management. Thomson Learning. Dobson, P., Starkey, K. (2004), The Strategic Management: Issues and Cases. Blackwell Publishing. Drejer, A. (2002), Strategic Management and Core Competencies: Theory and Application. Quorum Books. Gardiner, P. (2005), Project Management: A Strategic Planning Approach. Palgrave Macmillan. Mintzberg, H., Lampel, J. B., Quinn, J. B., Ghoshal, S. (2004), The Strategy Process. Pearson Education. Moore, J. L. (2001). Writers on Strategy and Strategic Management: Theory and Practice at Enterprise, Corporate, Business and Functional Levels. Penguin Books Ltd. Pittengrew, A. M., Thomas, H. Whittington, R. (2006). Handbook of Strategy and Management. Sage Publications. Thompson, J. L., Martin, F. (2005), Strategic Management: Awareness, Analysis and Change. Thomson Learning. Whittington, R. (2000) What is Strategy and Does it matter, Thomson, London. Read More