What is Strategic Management?
Strategic management is a set of managerial decisions and actions that determines the long run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control. The study of strategic management, therefore, emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation’s strengths and weaknesses. Originally called business policy, strategic management incorporates such topics as strategic planning, environmental scanning, and industry analysis.
PHASES OF STRATEGIC MANAGEMENT
Many of the concepts and techniques that deal with strategic management have been developed and used successfully by business corporations such as General Electric and the Boston Consulting Group. Over time, business practitioners and academic researchers have expanded and refined these concepts. Initially, strategic management was of most use to large corporations operating in multiple industries. Increasing risks of error, costly mistakes, and even economic ruin are causing today’s professional managers in all organizations to take strategic management seriously in order to keep their companies competitive in an increasingly volatile environment.
Financial planning|Strategic Management
As managers attempt to better deal with their changing world, a firm generally evolves through the following four phases of strategic management:
Phase 1—Basic financial planning:
Basic financial planning: Managers initiate serious planning when they are requested to propose the following year’s budget. Projects are proposed on the basis of very little analysis, with most information coming from within the firm. The sales force usually provides the small amount of environmental information. Such simplistic operational planning only pretends to be strategic management, yet it is quite time consuming. Normal company activities are often suspended for weeks while managers try to cram ideas into the proposed budget. The time horizon is usually one year Chiefs start genuine arranging when they are asked for to propose the next year’s financial plan. Undertakings are proposed based on next to no examination, with most data originating from inside the firm. The business compel for the most part gives the little measure of natural data. Such oversimplified operational arranging just professes to be key administration, yet it is very tedious. Ordinary organization exercises are frequently suspended for quite a long time while supervisors endeavor to pack thoughts into the proposed spending plan. The time skyline is generally one year
Realizing that even the best key designs are useless without the information and duty of lower-level chiefs, top administration frames arranging gatherings of administrators and key representatives at numerous dimensions, from different divisions what’s more, workgroups. They create and incorporate a progression of key designs went for accomplishing the organization’s essential destinations. Key designs now detail the execution, assessment, and control issues. Instead of endeavoring to flawlessly conjecture what’s to come, the plans underline plausible situations and possibility systems. The advanced yearly five-year key arrangement is supplanted with key reasoning at all dimensions of the association consistently. Vital data, already accessible just halfway to top administration, is accessible by means of neighborhood and intranets to individuals all through the association. Rather than an extensive brought together arranging staff, interior and outside arranging advisors are accessible to enable manual for gathering methodology talks. Albeit top administration may at present start the key arranging process, the subsequent techniques may come from anyplace in the association. Arranging is commonly intelligent crosswise over dimensions and is never again top down. Individuals at all dimensions are presently included
Phase 2—Forecast-based planning:
Forecast-based planning: As annual budgets become less useful at stimulating long term planning, managers attempt to propose five-year plans. At this point they consider projects that may take more than one year. In addition to internal information, managers gather any available environmental data—usually on an ad hoc basis—and extrapolate current trends five years into the future. This phase is also time consuming, often involving a full month of managerial activity to make sure all the proposed budgets fit together. The process gets very political as managers compete for larger shares of funds. Endless meetings take place to evaluate proposals and justify assumptions. The time horizon is usually three to five years.
Phase 3—Externally oriented (strategic) planning:
Externally oriented (strategic) planning: Frustrated with highly political yet ineffectual five-year plans, top management takes control of the planning process by initiating strategic planning. The company seeks to increase its responsiveness to changing markets and competition by thinking strategically. Planning is taken out of the hands of lower-level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation. Consultants often provide the sophisticated and innovative techniques that the planning staff uses to gather information and forecast future trends. Ex-military experts develop competitive intelligence units. Upper-level managers meet once a year at a resort “retreat” led by key members of the planning staff to evaluate and update the current strategic plan. Such top-down planning emphasizes formal strategy formulation and leaves the implementation issues to lower management levels. Top management typically develops five-year plans with help from consultants but minimal input from lower levels.
Phase 4—Strategic management:
Strategic management: Realizing that even the best strategic plans are worthless without the input and commitment of lower-level managers, top management forms planning groups of managers and key employees at many levels, from various departments and workgroups. They develop and integrate a series of strategic plans aimed at achieving the company’s primary objectives. Strategic plans at this point detail the implementation, evaluation, and control issues. Rather than attempting to perfectly forecast the future, the plans emphasize probable scenarios and contingency strategies. The sophisticated annual five-year strategic plan is replaced with strategic thinking at all levels of the organization throughout the year. Strategic information, previously available only centrally to top management, is available via local area networks and intranets to people throughout the organization. Instead of a large centralized planning staff, internal and external planning consultants are available to help guide group strategy discussions. Although top management may still initiate the strategic planning process, the resulting strategies may come from anywhere in the organization. Planning is typically interactive across levels and is no longer top down. People at all levels are now involved.
bearing. As indicated by Vice Chairman David Calhoun, “We chose that if this is what our clients need, how about we quit putting our heads in the sand, avoiding ecological interests, and go from resistance to offense.”3 Following GE’s declaration of its new key activity, investigators brought up issues as to organization’s capacity to make Ecomagination fruitful. They not just addressed CEO Immelt’s case that green could be gainful just as socially dependable,
Financial Planning|Strategic Management
in any case, they additionally thought about whether Immelt could change GE’s steady way to deal with advancement to one of seeking after more dangerous innovations, for example, power devices, sun powered vitality, hydrogen stockpiling, and nanotechnology.4 Other organizations had made declarations of green activities, possibly to abandon them dying from neglect when they meddled with benefits. For model, FedEx had reported in 2003 that it would before long be sending clean-consuming half breed trucks at a rate of 3,000 every year, in the end cutting emanations by 250,000 tons of ozone depleting substances. After four years, FedEx had bought less than 100 half and half vehicles, under 1% of its armada! With cross breed trucks costing 75% more than customary trucks,
it would take 10 years for the fuel funds to pay for the exorbitant vehicles. FedEx the board reasoned that making back the initial investment over a 10-year time frame was not the best utilization of organization capital. Therefore and different encounters, doubters felt that generally huge
organizations were possibly enjoying greenwash when they spoke uproariously about their manageability endeavors, however finished next to no genuine results.5 Chief Immelt had put his notoriety in danger by expressly driving GE’s Ecomagination activity. Doubters thought about whether the ecological markets would emerge and on the off chance that they would be as gainful as requested by GE’s investors. Would a corporate culture known for its quest for the Six Sigma measurements based way to deal with quality control be capable to make innovative leaps forward and new green organizations? On the off chance that Immelt was right,
in addition to the fact that GE would profit, however different organizations would before long pursue GE’s lead. Assuming, nonetheless,
he wasn’t right, Immelt would have driven his organization down an impasse where it would be hard to recuperate from the harm to its notoriety and money related standing. As indicated by a 25-year veteran of GE, “Jeff is requesting that we take a huge swing …. This is hard for us.”6
Financial Planning|Strategic Management
Immelt reported in a May 9, 2005, phone call that the organization intended to additional than twofold its spending on innovative work from $700 million out of 2004 to $1.5 billion by 2010 for cleaner items running from power age to trains to water preparing. The organization proposed to acquaint 30 with 40 new items, including progressively productive lighting and apparatuses, throughout the following two years. It additionally expected to twofold incomes from organizations that made breeze turbines, treat water, and decrease nursery discharging gases to at any rate $20 billion by 2010. Notwithstanding working with clients to grow progressively effective power generators, the organization wanted to decrease its very own discharge of ozone depleting substances by 1% by 2012
what’s more, decrease the force of those gases 30% by 2008.2 In 2006, GE’s best administration educated the numerous administrators of its worldwide specialty units that later on they would be judged not just by the typical measures, for example, return on capital, however that they would likewise be responsible for accomplishing corporate natural destinations.
Ecomagination was a key change for GE, an organization that had recently been censured by hippies for its accentuation on coal and atomic power and for contaminating the Hudson and Housatonic waterways with polychlorinated biphenyls (PCBs) during the 1980s. Over the a long time, GE had been censured for its absence of social obligation and for its accentuation on gainfulness and monetary execution over social and natural destinations. What caused GE’s
the board to roll out this key improvement? In the year and a half before propelling its new ecological procedure, GE welcomed supervisors from organizations in different ventures to partake in two-day “imagining sessions” amid which they were approached to envision life in 2015—and the items they, as clients, would need from GE. The agreement was an eventual fate of rising fuel costs, prohibitive natural controls, and developing customer desires for cleaner innovations, particularly in the vitality business. In view of this end, GE’s administration settled on the key choice to move in another