Strategic Management and Planning

What is Strategic Management/Planning?

Strategic management is a specific type of planning that involves fitting strategies to the
environment. It is concerned with the decisions and actions used to formulate and execute
strategies that will provide a competitively superior fit between the organization and its
environment to achieve organizational goals.

The Strategic Management Process

The strategic management process is a continuous cycle that involves several key steps:

1. Scan External Environment: This involves examining both the national and global
environments to identify potential opportunities and threats.
2. Scan Internal Environment: This involves examining the organization's internal resources and
capabilities to identify strengths and weaknesses. Key internal factors include core
competence, synergy, and value creation.
3. Identify Strategic Factors: Based on the environmental scans, organizations identify strategic
factors, which include opportunities, threats, strengths, and weaknesses (SWOT).
4. Evaluate Current Mission, Goals, and Strategies: The organization assesses its current
mission, goals, and strategies to determine their effectiveness and alignment with the
identified strategic factors.
5. Define New Mission, Goals, and Grand Strategy: Based on the evaluation, new or revised
mission statements and goals are established, along with a grand strategy to guide the
organization.
6. Formulate Strategy:
Strategies are formulated at different levels:
Corporate-Level Strategy: This determines what business the organization is in and
involves managing a portfolio of Strategic Business Units (SBUs).
Business-Level Strategy: This focuses on how to compete within a specific business unit.
Functional-Level Strategy: This involves action plans for major departments like Marketing,
Production, Finance, Human Resources, and Research & Development.

7. Execute Strategy: This is the final and often most difficult step, involving implementing the
formulated strategies through changes in leadership/culture, structure, human resources, and
communication systems.

SWOT Analysis

SWOT is a framework used to identify strategic factors:

Strengths: Internal capabilities that are helpful in achieving objectives.

Weaknesses: Internal limitations that hinder the achievement of objectives.
Opportunities: External factors that are helpful in achieving objectives.
Threats: External factors that could hinder the achievement of objectives.
Formulating Corporate-Level Strategy
Corporate-level strategy focuses on the overall direction and scope of the organization. Two key
approaches are:

Portfolio Strategy

This strategy is used to manage a mix of Strategic Business Units (SBUs). An SBU is a division or
unit within a larger company that operates independently and has its own mission, products, and
competitors. The goal is to achieve synergy and competitive advantage across SBUs, avoiding
over-dependence on any single business.

The BCG Matrix

The Boston Consulting Group (BCG) Matrix is a tool used in portfolio strategy to organize SBUs
based on two dimensions:

Business Growth Rate: The rate at which the market for the SBU's product or service is
growing.
Market Share: The SBU's share of the total market for its product or service.

The BCG Matrix categorizes SBUs into four types:

Stars: High growth rate, high market share. These are leaders in growing markets and require
significant investment to maintain their position.
Cash Cows: Low growth rate, high market share. These are established, successful products
that generate more cash than they consume. They should be "milked" to finance other
ventures.
Question Marks (or Problem Children): High growth rate, low market share. These are new
ventures with uncertain futures. Some may become stars, while others may need to be
divested. They require significant investment to grow market share.
Dogs: Low growth rate, low market share. These are typically underperforming units that may
generate little profit. Divestment may be considered.

Example: Nestlé BCG Matrix

Stars: Nescafe, Ceralac

Question Marks: Nescafe Decaf, Nestlé Nestum, Smarties, Nesquik
Cash Cows: Maggi Noodles, Kit Kat
Dogs: Neastea, Milky Bar, Nestlé Dahi, Nestlé Crunch, Nestlé Munch

Diversification Strategy

This strategy involves expanding into new lines of business or new products and services.
 Unrelated Diversification: Expanding into entirely new and unrelated business areas. This can
be challenging.
Vertical Integration: Expanding into businesses that supply the company's operations
(backward integration) or distribute its products (forward integration).

Formulating Business-Level Strategy

Business-level strategy focuses on how a business unit will compete in its market. Porter's Five
Forces framework is often used to analyze the competitive landscape.

Porter's Five Forces

This framework helps analyze the competitive intensity and attractiveness of an industry:

1. Threat of New Entrants: The ease with which new competitors can enter the market.
2. Bargaining Power of Suppliers: The ability of suppliers to exert pressure on businesses by
raising prices or reducing the quality of goods and services.
3. Bargaining Power of Buyers: The ability of customers to exert pressure on businesses by
demanding lower prices or higher quality.
4. Threat of Substitute Products or Services: The likelihood that customers will switch to
alternative products or services that meet the same need.
5. Rivalry Among Existing Competitors: The intensity of competition among current players in
the industry.

The internet can impact all of these forces, often by reducing barriers to entry, creating new
substitution threats, blurring differences among competitors, and shifting power to end
consumers.

Porter's Competitive Strategies

Michael Porter also identified three generic competitive strategies that businesses can pursue:

Cost Leadership: Aiming to be the lowest-cost producer in the industry. This requires strong
central authority, tight cost controls, and efficient operations.
Differentiation: Aiming to offer unique products or services that are valued by customers.
This requires strong marketing abilities, creative flair, and a reputation for quality or
technological leadership.
Focus: Concentrating on a narrow segment of the market and serving it exceptionally well,
either through cost leadership or differentiation within that niche.

Formulating Functional-Level Strategy

Functional-level strategy involves developing action plans for specific departments within the
organization, such as Marketing, Production, Finance, Human Resources, and Research &
Development, to support the overall business and corporate strategies.
Strategy Execution
Strategy execution is the process of putting strategies into action. It is often considered the most
critical and challenging aspect of strategic management. Successful execution requires:

Alignment: Ensuring all parts of the organization are focused on strategic goals.
Leadership: Effective leadership at all levels to drive the strategy.
Coordination: Smooth collaboration across functions and business units.
Communication: Clear and consistent communication of the strategy and its progress.

Six Silent Killers of Strategy Execution

These are common reasons why strategy execution fails:

Inadequate down-the-line leadership skills and development.

Poor coordination across functions, businesses, or borders.
Top-down or laissez-faire senior management style.
Poor vertical communication.
Unclear strategy and conflicting priorities.
An ineffective senior management team.