Strategic Management as the Process of Specifying an Organization's Objectives - Essay Example

Strategic Management “Strategic management is the ability of leaders to see their future ahead of others and to create products and services which will take advantage of this foresight. It is the ability of a firm’s management to properly align itself with the forces driving change in the environment in which it competes.” (Olsen, et al. 1998). Today organizations have goals, plans and resource management. In order to achieve specific goals of an organization, it is essential that they need to have strategic management. In this competitive world, those organizations which utilize strategic management practices are generally more effective than those who do not. This paper discusses the relevance of strategic management and its implications particularly to the hospitality industry. Strategic management is the process of specifying an organizations objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the companys top leaders particularly the Chief Executive Officer (CEO) and executive team. It provides an overall direction to the whole organization. An organization’s strategy must be best suited for its resources, circumstances, and to achieve its objectives. The process involves matching the companys strategic advantages to the business environment the organization faces. One aim of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics) into a cohesive whole (Wikipedia, 2006). “There are a few major forces driving change in the remote and immediate environments of the organization. These forces are often referred to as trends, create opportunities and pose threats to the firm. They shape and force change in both predictable and unpredictable patterns. Hence the success often comes from the choice of competitive methods used by the firm to take advantage of the threats and opportunities in the business environment. These methods should also provide the firm with sustainable competitive advantage. Above all the most important area of management in an organization is the effective and efficient allocation of the firm’s resources.” (Olsen, et al. 1998). Corporate strategy can be described as an organizations sense of purpose - a guiding purpose or policy, a focus/mission statement, even a philosophy, for the achievement of an objective. It is the mapping out of future directions that need to be adopted using the resources possessed. The study of corporate strategy is a relatively recent phenomenon. Edith Penrose (1959) was one of the earliest academics to argue that what happened inside the firm was just as important as the marketplace outside the firm. Until this time, the main focus of economics had been upon the marketplace outside the firm, with a detailed consideration of market demand and supply issues. Penrose argued that the growth of the firm was related to its use of resources, its past history and its evolution over time; previous history was a key influence on future development. The US strategist Alfred Chandler (1962) also published a substantial study concerning the growth of the firm. He argued, in support of Penrose, that the development of an organization over time is an essential element in understanding strategy. Strategic management involves the pattern of major objectives, goals and purposes and the fundamentals, plans, policies and philosophies for achieving those goals that are declared in such a way as to define what business the firm is engaged in and the kind of organization it is or would like to be. Approach or the strategy at the corporate or business level can be viewed from three vantage points: Strategy formulation (developing a strategy); Strategy implementation (putting a strategy into action); Strategic control or evaluate (modifying the strategy and/or its deployment to ensure desired outcomes are attained). Thus, from the third perspective, every organization needs to manage strategies in three main areas: The firms internal resources; The external environment within which the firm operates; The firms ability to add value to what it does. Strategic management can be seen as a combination of strategy formulation and strategy implementation (Lowson, 2002). Strategy formulation involves the following systematic steps: Doing a situation analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives. This three-step strategy formation process is sometimes referred to as determining the current position of an organization, determining the future goals, and then determining the plan to achieve the set goals. These three aspects are the essence of strategic planning. Strategy implementation involves the following steps: Allocation of sufficient resources (financial, personnel, time, computer system support) Establishing a chain of command or some alternative structure (such as cross functional teams) Assigning responsibility of specific tasks or processes to specific individuals or groups It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes. Both strategy formation and implementation is an on-going, never-ending, integrated process that requires continuous reassessment and reformation. Strategic management is dynamic that involves a complex pattern of actions and reactions. It is partially planned and partially unplanned. Strategy is planned and emergent, dynamic, and interactive. There are critical points at which a strategy must take a new direction in order to be in step with a changing business environment. These critical points of change are called strategic inflection points. Strategic management operates on several time scales. Short term strategies involve planning and managing for the present. Long term strategies involve preparing for the future (Wikipedia, 2006). History of strategic management If we look at a brief history of strategic management, these can be traced alongside the development of the subject over time, as shown in Table 1. Table 1: The evolution of strategic management 1950s 1960s 1970s 1970s-1980s 1980s-1990s 2000s Dominant theme Budgets used for planning and control Corporate planning Corporate strategy Industry analysis Competitive advantage Innovation and creativity Main issues Financial control through budgeting Planning for growth Portfolio planning Segments, choice, positioning Sources of competitive advantage Flexibility and responsiveness Concepts and techniques Budgets at all levels for directing and planning Forecasting and modelling Synergy, Strategic Business Units (SBUs), matrices and experience curves Structure and competitor analysis Resources, core competencies Rapid diversification, knowledge and learning Implications Strength of financial management is crucial Planning Departments and the five year plan Diversification, multidivisional, globalization Selectivity, restructuring, asset management Business Process Re-engineering (BPR), outsourcing, restructuring and refocusing Virtuality, knowledge bases, network management Source: (Lowson, 2002) Resource-based Vs Market-driven views Resource-based The resource-based view represents a substantial shift in emphasis towards the individual resources of the organization and away from the market-based view. Despite its recent popularity, the concept of resources and capabilities emerged from research into diversification. Wernerfelt (1984), for example, built on the economic theories of Penrose (1959) and viewed companies as a collection of resources, rather than holding market positions in the development of strategy. The notion of distinctive competencies, first discussed by Selznick (1957) and Ansoff (1965), was further reiterated by Prahalad and Hamel (1990). In their analysis, key resources, skills and technologies are called core competencies. Since the end of the 1980s, the resource-based view has been extended to the field of strategic analysis and strategic choice identifying the importance of resources in strategy development. A resource is a basic element that a firm controls in order to best organize its operational processes. A person, machine, raw material, knowledge, brand image and a patent can all be viewed as examples. Often the distinction is made between tangible and intangible resources (Godfrey and Hill, 1995). Kay (1993) identifies three of the most important resources as: the firm’s ability to innovate; its reputation; and its network of relationships inside and outside. A resource, or set of resources, can be used to create competitive advantage. The sustainability of this advantage depends upon the ease with which the resources can be imitated or substituted (Peteraf, 1993). When resources are combined they can lead to the formation of competencies and capabilities (Prahalad and Hamel, 1990). Competencies refer to the fundamental knowledge owned by the firm (knowledge, know-how, experience, innovation and unique information). To be distinctive they are not confined to functional domains but cut across the firm and its organizational boundaries. Competitive advantage can come from a focus upon key competencies (those things the firm specializes in or does well). Capabilities, meanwhile, reflect an organizations ability to use its competencies. Capabilities refer to the dynamic routines acquired by the organization concerning the managerial capacity to improve continuously the effectiveness of the organization. According to Collis (1996), capabilities represent the firm’s collective tacit knowledge of how to initiate or respond to change that is built into an organizations process, procedures and systems, and that is embedded in models of behaviour, informal networks and personal relationships. We should note, however, that resources, capabilities and competencies are dynamic and constantly changing (Teece, Pisano and Shuen, 1997). The essence of the resource-based view is its focus on the individual resources, competencies and capabilities of the organization, rather than on the strategies that are common to all companies in the industry. Understanding the industry is important, but organizations should seek their own individual solutions in that context. Sustainable advantage comes from exploitation of the relevant resources of the individual organization. The resource-based view draws attention to those internal resources created within a particular enterprise that cannot be purchased externally. Organizations are bundles and clusters of resources, capabilities and competencies and managers must develop these in unique ways. These can be managed and combined to create an organizations unique difference. They cannot be easily reshuffled to take account of market opportunities, but organizations must define opportunities in terms of existing internal capabilities and focus on the unique expertise (outsourcing anything that is not central to this). Market-driven During the 1970s and 1980s the focus of strategic thinking shifted to environmental-based opportunities. The leading proponent of this approach is Michael Porter (1980, 1985). In his book Competitive Strategy (1980), which was written from the perspective of industrial economics, he introduced the five forces model and the concept of generic strategies. The argument is, that it is not the industry that an organization is in that counts, but where it wants to compete in terms of the nature of the competition. This competition is provided by the nature of the rivalry between existing firms, the threat of potential entrants and substitute products and the bargaining power of buyers and suppliers. The generic strategy adopted will offer an organization three ways of coping with these forces and achieving sustainable competitive advantage: overall cost leadership (traditionally based on economies of scale), differentiation (offering a product or service perceived in the industry as unique), and focus (using the low cost or differentiation in a niche or narrow segment). According to the theory, every business needs to adopt one of these strategies in order to compete in the marketplace. There are real dangers for a firm that engages in more than one and fails to achieve any of them - it is stuck in the middle. A firm in this position: Will compete at a disadvantage because the cost leader, differentiators, or focuser will be better positioned to compete in any segment. Such a firm will be much less profitable than rivals achieving one of the generic strategies. Current prevalent opinion, however, seems to be that companies can be all things to all people- or most of them anyway. Ghemawat (1999) suggests a good strategy of embraces the idea that competitive position must consider both relative cost and differentiation, and it recognizes the tension between the two. Positioning, in this view, is an effort to drive the largest possible wedge between cost and differentiation (or price). Despite the fact that the market-driven views are still widely held, there are those that reject many of the aspects of this approach (Lowson, 2002). Management Practices Business process reengineering is a management approach that examines aspects of a business and its interactions, and attempts to improve the efficiency of the underlying processes. Business process reengineering is also known as BPR, Business Process Redesign, Business Transformation, and Process Change Management. Teng et al. (1994) define BPR as "the critical analysis and radical redesign of existing business processes to achieve breakthrough improvements in performance measures." (Yogesh, 1998). [11] Davenport and Short (1990) prescribe a five-step approach to BPR: “Develop the Business Vision and Process Objectives: BPR is driven by a business vision which implies specific business objectives such as Cost Reduction, Time Reduction, Output Quality improvement, QWL (Quality of Work Life)/Learning/Empowerment. Identify the Processes to be Redesigned: Most firms use the High- Impact approach which focuses on the most important processes or those that conflict most with the business vision. Lesser number of firms uses the Exhaustive approach that attempts to identify all the processes within an organization and then prioritize them in order of redesign urgency. Understand and Measure the Existing Processes: For avoiding the repeating of old mistakes and for providing a baseline for future improvements. Identify IT Levers: Awareness of IT capabilities can and should influence process design. Design and Build a Prototype of the New Process: The actual design should not be viewed as the end of the BPR process. Rather, it should be viewed as a prototype, with successive iterations. The metaphor of prototype aligns the BPR approach with quick delivery of results, and the involvement and satisfaction of customers”. However the major disadvantage of the BPR is that 70% projects fail. Main obstacles that reengineering faces are: (i) Lack of sustained management commitment and leadership; (ii) Unrealistic scope and expectations; and (iii) Resistance to Change. (Yogesh, 1998). [11] TQM and BPR share a cross-functional orientation. Davenport observed that quality specialists tend to focus on incremental change and gradual improvement of processes, while proponents of reengineering often seek radical redesign and drastic improvement of processes. Davenport (1993) notes that Quality management, often referred to as total quality management (TQM) or continuous improvement, refers to programs and initiatives that emphasize incremental improvement in work processes and outputs over an open-ended period of time. In contrast, Reengineering, also known as business process redesign or process innovation, refers to discrete initiatives that are intended to achieve radically redesigned and improved work processes in a bounded time frame.   Quality management or Total Quality Management is concerned with getting things right. It may be critically important to drive out all possibility of errors - or it may be acceptable to take delivery of a product or service that is good enough. It may be also defied as follows: "The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs." ISO8402 -1986. In the OGC Successful Delivery Toolkit™ (2005) Quality management principles cover: Customer focus - acknowledging that organizations depend on their customers and therefore it is very important to understand their current and future. Leadership - establishing unity of purpose and direction of the organization. Involvement of people - ensuring that there is the right environment / culture for people to become fully involved in achieving organizational objectives and that individual ability are used and nurtured for the organization’s benefit. Process approach - defining the activities necessary to achieve organizational goals, and ensuring that activities and related resources are managed as a process. Systematic approach to management - identifying, understanding and managing processes, to make a demonstrable contribution to the organization’s effectiveness and efficiency in achieving its objectives. Continual improvement - driven by senior management, focused on critical process areas with explicit improvement goals, to contribute to the overall performance of the business. Factual approach to decision making - facilitated by pertinent data and information which is sufficiently accurate, reliable, and accessible. Mutually beneficial supplier relationships - assuring that the interdependencies are recognized and mutually beneficial relationships are fostered to enhance the ability to create value. Quality Management shares the following common intent from organization to organization: Organizations design and manage their processes effectively to achieve corporate objectives and avoid functional silos that compete for resources Organizations choose appropriate activities and measures based on an objective analysis of their operational and business environment Management creates an environment in which people are motivated and initiative and creativity are not stifled. It is essential that sufficient time and suitable resources are dedicated to testing and commissioning to assure the fundamental success of any project, including quality initiatives. A typical process for design, planning and implementing a quality system is likely to involve: Planning the quality initiative and obtaining executive sponsorship Establishing the quality policy for the organization Designing and planning the QMS, usually based on international standards Establishing the quality organization, and developing the quality manual and structure of quality records Determining the scope of implementation Assuring quality plans Reviewing deliverables and determining any actions Auditing quality records Defining areas for process improvement Managing the improvement programme [12] Conclusion The application of strategic management concepts and processes particularly in the hospitality industry such as tourism has provided an organized framework to examine their financial conditions; understand the strengths and weaknesses; identify the development problems and strategic issues; and develop action plans to implement their development programs that can result in effective and efficient management. The emphasis on strategic management also helps organizations to adopt a systematic approach to all round development, which includes such benefits as being proactive, improving coordination, and promoting a balanced and long-term development. It is essential that in today’s world of competition, the organizations have individual strategic management programs. This is the only way that any organization can survive in a long run. References Ansoff, H.I. (1965) Corporation Strategy, McGraw-Hill, New York. Chandler, A. (1962) Strategy and Structure, MIT Press, Cambridge, MA. Godfrey, P.C. and Hill, C.W.L. (1995) ˜The Problems of Unobservables in Strategic Management Research”, Strategic Management Journal 16, 7, 23-45. Ghemawat P. (1999) Strategy and the Business Landscape: Text and Cases, Addison-Wesley, New York. Kay, J. (1993) Foundations of Corporate Success, Oxford University Press, Oxford. Lowson, R.H. 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