Definition Of Strategic Management

What is strategic management?

Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic idendification of specifying the firm's objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm's objectives. Strategic management, therefore, integrates the activities of the various functional sectors of a business, such as marketing, sales, production etc. , to achieve organizational goals. It is generally the highest level of managerial activity, usually iniated by the board of directors and executed by the firm's Chief Executive Officer (CEO) and executive team. Strategic management hopes to provide overall direction to the company has ties to the field of organization studies.

"Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment." (Lamb, 1984)

Generally, there are two main ideologies which dictate the approach taken, these are opposite but complement each other in some ways, to strategic management:

* The Industrial Organizational Approach

o centred on economic theory -- tackles issues like competitive rivalry, resource allocation and economies of scale

o assumptions -- rationality, self discipline behaviour, profit maximization

* The Sociological Approach

o deals mainly with human interactions

o assumptions -- bounded rationality, satisfying behaviour, profit sub-optimality. An example of a company that currently operates this way is Google.com, the internet search engine.

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up idealogy, employees submit proposals to their respective supervisors who, in turn, channel the best suggestions further up the company food chain. This is usually processed through a capital budgeting system. New ideas are scrutinesed using financial criteria such as return on investment or cost-benefit analysis. The proposals that pass these initail feasiblity tests form the substance of a new strategy, all of which is processed without an overall strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO (such as Don Sheelen {Regina vacuum cleaners}, Jeff Bezos {Amazon.com} and Samuel J. Palmisano {IBM}) with more than likely the assistance of a dedicated strategic planning team, decides on the overall direction the firm should follow. Some companies are beginning to experiment with collaborative strategic planning techniques that utilize the emergent nature of strategic management.

The strategy hierarchy

In the majority of corporations there are numerous levels of strategy. Strategic management is the highest in the view that it has the largest spectrum of planning, applying to all parts of the company. It provides guidance to corporate values, corporate culture, corporate goals, and corporate missions. Under this umbrella type corporate strategy there are often functional or business unit strategies.

Functional strategies may include marketing, new product development, human resource, financial, legal, supply-chain, and information technology management strategies. The priority is on short and medium term plans and is restricted to the range of each department's functional responsibility. Every functional department attempts to do its part in suceeding in overall corporate objectives, and to some extent their relatively small scale strategies are derived from larger corporate strategies.

Many organisations believe a functional organizational structure is not an efficient way to organize activities so they have re jigged the organisational policy according to processes or strategic business units (called SBUs). A strategic business unit is a semi-autonomous team within an organization. It is usually responsible for its own budgeting, new product portfolios, recriutment decisions, and pricing strategies. An SBU is looked upon as an internal profit centre by the head administration of the firm. Each SBU has responsiblities in developing its business strategies, strategies that must be in keeping with overall management strategies.

Operational Strategy

The lowest level of strategy is operational strategy. It is very limited in focus and occupies itself with day-to-day operational activities such as timetabling. It must sustain itself within a budget but does not have the power to adjust or create that budget. Operational level strategy was promoted by Peter Drucker in his theory of management by objectives (MBO). Operational level strategies are guided by business level strategies which, in turn, are informed by strategic management decisions. Business strategic management, which refers to the operational strategies of single company or that of an SBU in a diversified corporation refers to the way in which a business competes in its chosen arenas.

Corporate Strategy

Corporate strategy is basically the overarching strategy of the diversified company. Such corporate strategy answers the questions of "in which business or market should we compete?" and "how does competing in one market add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?"

Since the turn of the decade, there has been a tendency in some companies to change back to a more straight forward strategic structure. This is being fuelled by information technology. It is generally agreed that knowledge management strategy systems should be used to share information and create common goals. Strategic divisions are believed to hamper this process. These divisions prevent the effective outlining of firm strategy, both business and corporate, and prevent the firm from engaging in ongoing strategic change, and the seamless integration of strategy formulation and implementation.