LECTURE THREE

STRATEGIC MANAGEMENT MODEL

3.1 Introduction
Since the development of strategic management, there have been many

Definitions of strategic management as there are many books written in this area.
According to Gluck and Jaunch (1984), strategic management refers to a set of
decisions and actions that lead to the formulation of an effective strategy to achieve the
objectives of the organization

Pearce and Robinson (1985) define strategic management as a set of decisions and
actions that lead to the formulation and implementation of a strategy so as to achieve
the objectives of the organization

Hunger and Wheelen (1996) define strategic management as a set of managerial

decisions and actions which determine the long-run performance of an organization. It
also includes environmental scanning, strategy formulation, strategy implementation,
and evaluation and control

3.2 LEARNING OUTCOMES

By the end of this topic, you should be able to:

1. Distinguish the key components of strategic management;

2. Describe the strategic management model; and

3. Explain the interrelationships in the strategic management process

3.3 WHAT IS STRATEGIC MANAGEMENT?

In today's highly competitive business environment, budget-oriented planning or
forecast-based planning methods are insufficient for a large corporation to survive and
prosper. The firm must engage in strategic planning that clearly defines objectives and
assesses both the internal and external situation to formulate strategy, implement the
strategy, evaluate the progress, and make adjustments as necessary to stay on track. A
simplified view of the strategic planning process is shown by the following diagram

From the definitions, it is clear that strategic management involves making decisions
and taking actions that can help organizations achieve their objectives by adopting a
systematic way of formulating the strategy, implementing the strategy, and evaluating
and controlling the strategy implemented. Strategic management, therefore, integrates
various functional areas like marketing, management, finance, accounting, human
resources, production and information systems in a formal and systematic manner
consistent with the objectives of the organization and superior performance. This
definition also suggests that strategic management comprises three key components,
namely, strategy formulation, strategy implementation and strategy evaluation and
control as shown in Figure 2.1

3.4 COMPONENTS AND ELEMENTS OF STRATEGIC MANAGEMENT

There are three major components in strategic management, namely, strategy
formulation, strategy implementation and strategy evaluation and control as shown in
Figure 2.1. There are several elements that make up each component. In the strategy
formulation component, the key elements are vision, mission, goals and objectives of
the organization. The other elements are the external analysis, internal analysis,
industry analysis and competitive analysis. Identifying strategic alternatives and
selection of the strategic choices also form part of the strategy formulation component.
In the strategy implementation component, there are at least three key elements that
affect strategy implementation. These are organizational structure, people and
leadership, and organizational systems and processes. It is in this component where
action begins for the organization and it presents a major challenge to many
organizations. In the strategy evaluation and control component, the key elements are
the evaluation model and processes, evaluation criteria, and control methods and
mechanisms for improving organizational performance and meeting the organisational
objectives. In order to better understand these elements and components (see Table
2.1 and Figure 2.2), it is important to know some basic concepts in strategic
management.

The term ‰strategy„ refers to the means by which organizations try to achieve their
long-terms objectives (David, 2003). It also refers to the actions that managers have to
take or do in order to ensure that what has been set in the objective can be achieved

For example, Yahoo's strategy is to obtain 80% of its revenue from advertising to obtain
more revenue from customers who pay for services. As such, YahooÊs strategy is to
offer services like personalized Web pages, audio subscriptions and music videos for a
fee (David, 2003). Strategists are, therefore, people in the organization who are
responsible for the success or failure of the organization (David, 2003). They are also
people who can make key decisions affecting the survival of the organization. These are
people with job titles like the chief executive officer, vice-chancellor, president,
executive director, managing director, and dean, chairman of the board and business
owner or entrepreneur.

Another familiar term in strategic management is policy. Policies include guidelines,

rules and procedures that were established or created to support the efforts in achieving
organizational objectives. Policies provide broad guidelines for managers to operate
their business activities without indicating the specific approaches or ways of doing
things. In order to know how to do things, procedures and rules are developed so as to
ensure consistency in the way things are done. For example, the policy of an
organization is to give a performance bonus of four months basic salary to employees
with excellent performance. The organization has found that 10 of its 100 employees
deserve this performance bonus, and to implement this policy, the human resource
department is required to determine the criteria for excellent performance (which is
generally defined in the performance appraisal process), and then apply the rule to the
affected employees. Procedures will explain how things should be done, while rules will
explain what would be done within the parameters set by the organization. So the rule is
that only excellent employees will receive the four months bonus. The procedure is
outlined in the annual performance appraisal evaluation form as set out by the human
resource department.
3.5 STRATEGIC MANAGEMENT MODEL

3.5.1 STRATEGIC INTENT Strategic intent takes the form of a number of corporate
challenges and opportunities, specified as short term projects. The strategic intent must
convey a significant stretch for the company, a sense of direction, which can be
communicated to all employees. It should not focus so much on today's problems, but
rather on tomorrow's opportunities. Strategic intent should specify the competitive
factors, the factors critical to success in the future. Strategic intent gives a picture about
what an organization must get into immediately in order to use the opportunity. Strategic
intent helps management to emphasize and concentrate on the priorities. Strategic
intent is, nothing but, the influencing of an organization’s resource potential and core
competencies to achieve what at first may seem to be unachievable goals in the
competitive environment.
3.5.2 Environmental Scan

The environmental scan includes the following components:

• Analysis of the firm (Internal environment)

• Analysis of the firm's industry (micro or task environment) Analysis of the External
macro environment (PEST analysis) The internal analysis can identify the firm's
strengths and weaknesses and the external analysis reveals opportunities and threats.
A profile of the strengths, weaknesses, opportunities, and threats is generated by
means of a SWOT analysis An industry analysis can be performed using a framework
developed by Michael Porter known as Porter's five forces. This framework evaluates
entry barriers, suppliers, customers, substitute products, and industry rivalry.

3.5.3 Strategy Formulation

Strategy Formulation is the development of long-range plans for the effective

management of environmental opportunities and threats, in light of corporate strengths
& weakness. It includes defining the corporate mission, specifying achievable
objectives, developing strategy & setting policy guidelines.

i) Mission Mission is the purpose or reason for the organization’s existence. It

tells what the company is providing to society, either a service like housekeeping
or a product like automobiles.

ii) Objectives Objectives are the end results of planned activity. They state what
is to be accomplished by when and should be quantified, if possible. The
achievement of corporate objectives should result in the fulfillment of a
corporation’s mission.

iii) Strategies Strategy is the complex plan for bringing the organization from a
given posture to a desired position in a future period of time.

3.5.4 Policies
 A policy is a broad guide line for decision-making that links the formulation of
strategy with its implementation. Companies use policies to make sure that
employees throughout the firm make decisions & take actions that support the
corporation’s mission, objectives & strategy.

Strategy Implementation It is the process by which strategy & policies are put into
actions through the development of programs, budgets & procedures. This process
might involve changes within the overall culture, structure and/or management system
of the entire organization.

i) Programs: It is a statement of the activities or steps needed to accomplish a single-

use plan. It makes the strategy action oriented. It may involve restructuring the
corporation, changing the company’s internal culture or beginning a new research effort.

ii) Budgets: A budget is a statement of a corporations program in terms of dollars. Used

in planning & control, a budget lists the detailed cost of each program. The budget thus
not only serves as a detailed plan of the new strategy in action, but also specifies
through proforma financial statements the expected impact on the firm’s financial future

iii) Procedures: Procedures, sometimes termed Standard Operating Procedures (SOP)

are a system of sequential steps or techniques that describe in detail how a particular
task or job is to be done. They typically detail the various activities that must be carried
out in order to complete e) Evaluation & Control After the strategy is implemented it is
vital to continually measure and evaluate progress so that changes can be made if
needed to keep the overall plan on track. This is known as the control phase of the
strategic planning process. While it may be necessary to develop systems to allow for
monitoring progress, it is well worth the effort. This is also where performance standards
should be set so that performance may be measured and leadership can make
adjustments as needed to ensure success.

Evaluation and control consists of the following steps: i) Define parameters to be

measured ii) Define target values for those parameters iii) Perform measurements iv)
Compare measured results to the pre-defined standard
As mentioned in the earlier subtopic, the strategic management model comprises three
parts, namely, strategy formulation, strategy implementation, and strategy evaluation
and control. As shown in Figure 2.1 earlier, the generic model of strategic management
is at the macro level. However, at the micro level of the organisation, the strategic
management model comprises several elements in the components of the strategic
management model. Figure 2.2 shows the components and elements of the strategic
management model.

Developing the strategic management model is important as it provides the basic

framework for understanding how strategic management can be operationalized at the
firm level. Furthermore, the strategic management model provides managers and
strategists a greater comprehension of the iterative approach in conducting real
strategic management in the organisational setting.

The organisational vision and mission would then be translated into the organisational
goals. Definitions of these terms are explained. These elements show the direction
and the areas of concern to be achieved by an organisation. Once these elements have
been determined, the role of the manager or strategist is to perform an analysis of the
organisation. This involves the three major types of analysis, namely, the external
analysis of the environment, the internal analysis of the organisation, and then the
industry analysis. Each of these analyses will provide information on opportunities and
threats, strengths and weaknesses, and help the organisation to position itself vis-à-vis
the other competing organizations in the industry. The results of these analyses would,
therefore, help managers and strategists to match the niche areas to be focused,
identify distinctive competence of the organisation and determine the competitive
position the organisation should take in order to sustain its competitive edge in the
industry. The results of the strategic analysis will then help managers or strategists to
determine the potential alternatives available to the organisation. A selection of the
appropriate strategic choices will be made ready for implementation.

In implementing strategy, the organisation has to make sure that the elements in
implementation are in place. This means that the organisational goals have to be
defined at the operational level, and translated into objectives, which are more specific
and precise than the goals set by the organisation. Policies in the organisation need to
be developed and put in place. Then, specific programmes or plans of action should be
prepared to ensure effective implementation of the organisational strategy. Strategy
implementation would not be complete without ensuring that the fundamental elements
in strategy implementation are all in place. This includes ensuring that the organisation
has the appropriate structure, people and leadership required to manage the
implementation of the selected plan of action. Finally, implementation also requires
managers or strategists to coordinate and integrate the various functional areas in the
organisation so that the systems and processes of managing the various multifunctional
areas are synchronised with the organisational objectives that have been set earlier.
The final part of the strategic management model comprises strategy evaluation and
control. In this component, managers or strategists have to ensure that the implemented
strategy is evaluated accordingly and reviewed periodically; say every half yearly or
quarterly. The evaluation criteria and expected performance are benchmarked with the
standards of the industry or firm. Comparisons are made with other competitors or firms
or in time dimension (against the previous year). Control mechanisms should be put in
place so that organisations can assure that the desired objectives set can be met in the
next phase of implementation.

Once the strategic management model is clearly defined and set, the next phase
involves understanding the processes of strategic management.

A corporate stakeholder is a party that can affect or be affected by the actions of the
business as a whole. Stakeholder groups vary both in terms of their interest in the
business activities and also their power to influence business decisions. Here is the
summary:

The stake holders of a company are as follows

• Shareholders

• Creditors
• Directors and managers

• Employees

• Suppliers

• Customers

• Community

• Government

2.6 STAKEHOLDERS IN BUSINESS