THE STRATEGIC
MANAGEMENT PROCESS
THE STRATEGIC
MANAGEMENT PROCESS
PART II: THE FIVE TASKS OF STRATEGIC
MANAGEMENT
The strategy-making, strategy-implementing process consists of five inter-
related managerial tasks:
1. Deciding what business the company will be in and forming a strategic vision
of where the organization needs to be headed - in effect, setting the
organization with a sense of purpose, providing long-term direction, and
establishing a clear mission to be achieved.
2. Converting the strategic vision and mission into measurable objectives and
performance targets.
3. Crafting a strategy to achieve the desired results.
4. Implementing and executing the chosen strategy efficiently and effectively.
5. Evaluating performance, reviewing new developments, and initiating corrective
adjustments in long-term direction, objectives, strategy, or implementation in
the light of actual experience, changing conditions, new ideas, and new
opportunities.
Figure 1-1 illustrates this process. Together, these five components define what
I mean by the term strategic management. Let's explore this framework in more
detail to set the stage for all that follows.
1. Developing a Strategic Vision and Business Mission
The foremost direction-the very first question that senior managers need to ask
is "What is our vision for the company—what are we trying to do and to become?
" Developing a carefully reasoned answer to this question pushes managers to
consider what the company's business character is and should be and to develop a
clear picture of where the company needs to be headed over the next 5 to 10
years. Management's answer to "who we are, what we do, and where we're headed"
shapes a course for the organization to take and helps establish a strong
organizational identity. What a company seeks to do and to become is commonly
termed the company's mission. A mission statement defines a company's
business and provides a clear view of what the company is trying to
accomplish for its customers. But managers also have to think strategically
about where they are trying to take the company. Management's concept of the
business needs to be supplemented with a concept of the company's future
business characteristic and long-term direction. Management's view of the kind
of company it is trying to create and its intent to be in a particular business
position represent a strategic vision for the company. By developing and
communicating a business mission and strategic vision, management educate the
workforce with a sense of purpose and a persuasive reasons for the company's
future direction. Here are some examples of company mission and vision
statements:
Examples of Company Mission and Vision Statements
Avis Rent-a-Car:
"Our business is renting cars. Our mission is total customer satisfaction."
Public Service Company of New Mexico:
"Our mission is to work for the success of people we serve by providing our
customers reliable electric service, energy information, and energy options that
best satisfy their needs."
American Red Cross:
"The mission of the American Red Cross is to improve the quality of human
life; to enhance self-reliance and concern for others; and to help people avoid,
prepare for, and cope with emergencies."
Compaq Computer:
"To be the leading supplier of PCs and PC servers in all customer segments."
2. Setting Objectives
The purpose of setting objectives is to convert managerial statements of business
mission and company direction into specific performance targets, something the
organization's progress can be measured by. Objective-setting implies challenge,
establishing performance targets that require stretch and disciplined effort. The
challenge of trying to close the gap between actual and desired performance
pushes an organization to be more inventive, to exhibit some urgency in
improving both its financial performance and its business position, and to be
more intentional and focused on its actions. Setting objectives that are
challenging but achievable can help guard against self-satisfied, non-directed and
internal confusion over what to accomplish. As Mitchell Leibovitz, CEO of Pep
Boys—Manny, Moe, and Jack, puts it, "If you want to have ho-hum results, have
ho-hum objectives."
The objectives managers establish should ideally include both short-term and
long-term performance targets. Short-term objectives spell out the immediate
improvements and outcomes management desires. Long-term objectives prompt
managers to now to position the company to perform well over the longer term.
As a rule, when alternative have to be made between achieving long-run
objectives and achieving short-run objectives, long-run objectives should take the
priority. Rarely does a company prosper from repeated management actions that
sacrifice better long-run performance for better short-term performance.
Objective-setting is required of all managers. Every unit in a company needs
concrete, measurable performance targets that contribute meaningfully toward
achieving company objectives. When company's general objectives are broken
down into specific targets for each organizational unit and lower-level managers
are responsible for achieving them, a results-oriented climate builds throughout
the enterprise. The ideal situation is a team effort where each organizational unit
is striving hard to produce results in its area of responsibility that will help the
company reach its performance targets and achieve its strategic vision.
From company general objectives, two types of performance objectives are
called for: financial objectives and strategic objectives. Financial objectives are
important because without acceptable financial performance an organization risks
being denied the resources it needs to grow and prosper. Strategic objectives are
needed to prompt managerial efforts to strengthen a company's overall business
and competitive position. Financial objectives typically relate to such measures
as earnings growth, return on investment, borrowing power, cash flow, and
shareholder returns. Strategic objectives, however, concern a company's
competitiveness and long-term business position in its markets: growing faster
than the industry average, overtaking key competitors on product quality or
customer service or market share, achieving lower overall costs than rivals,
boosting the company's reputation with customers, winning a stronger foothold
in international markets, exercising technological leadership, gaining a
sustainable competitive advantage, and capturing attractive growth opportunities.
Strategic objectives serve notice that management not only intends to deliver
good financial performance but also to improve the organization's competitive
strength and long-range business prospects. And here are examples of strategic
and financial objectives
Strategic and Financial Objectives of Well-Known Corporations
Apple Computer
"To offer the best possible personal computer technology, and to put that
technology in the hands of as many people as possible."
Atlas Corporation
"To become a low-cost, medium-size gold producer, producing in excess of
125,000 ounces of gold a year and building gold reserves of 1,500,000 ounces."
Exxon
To provide shareholders a secure investment with a superior return."
3. Crafting a Strategy
Strategy-making brings into play the critical managerial issue of how to achieve
the targeted results in light of the organization's situation and prospects.
Objectives are the "ends," and strategy is the "means" of achieving them. In effect,
strategy is the pattern of actions managers employ to achieve strategic and
financial performance targets. The task of crafting a strategy starts with solid
analyses of the company's internal and external situation. Only when armed
with hard analysis of the big picture are managers prepared to make a sound
strategy to achieve targeted strategic and financial results. Why?- Because
misanalysis of the situation greatly raises the risk of pursuing ill-awarded
strategic actions.
A company's strategy is typically a combination of (1) deliberate and purposeful
actions and (2) as-needed reactions to unanticipated developments and fresh
competitive pressures. As illustrated in Figure 1-2, strategy is more than what
managers have carefully set it out in advance and intend to do as part of some
important strategic plan. New circumstances always emerge, whether important
technological developments, rivals' successful new product introductions, newly
enacted government regulations and policies, widening consumer interest in
different kinds of performance features, or whatever. There's always enough
uncertainty about the future that managers cannot plan every strategic action in
advance and pursue their intended strategy without alteration. Company strategies
end up, therefore, being a composite of planned actions (intended strategy) and
as-needed reactions to unforeseen conditions ("unplanned" strategy responses).
Consequently, strategy is best considered as a combination of planned actions
and on-the-spot adaptive reactions to fresh developing industry and competitive
events. The strategy-making task involves developing a game plan, or intended
strategy, and then adapting it as events occur. A company's actual strategy is
something managers must craft as events arise outside and inside the company.
3.1. Strategy and Entrepreneurship
Crafting strategy is an exercise in entrepreneurship and outside-in strategic
thinking. The challenge is for company managers to keep their strategies closely
matched to such outside drivers as changing buyer preferences, the latest actions
of rivals, market opportunities and threats, and newly appearing business
conditions. Company strategies can't be responsive to changes in the business
environment unless managers exhibit entrepreneurship in studying market trends,
listening to customers, enhancing the company's competitiveness, and leading
company activities in new directions in a timely manner. Good strategy-making
is therefore inseparable from good business entrepreneurship. One cannot
exist without the other.
A company encounters two dangers when its managers fail to exercise strategy-
making entrepreneurship. One is a stale strategy. The faster a company's
business environment is changing, the more critical it becomes for its managers
to be good entrepreneurs in diagnosing shifting conditions and making strategic
adjustments. Coasting along with a set strategy tends to be riskier than making
modifications. Strategies that are increasingly not linked with market realities
make a company a good candidate for a performance crisis.
The second danger is inside-oriented strategic thinking. Managers with weak
entrepreneurial skills are usually risk-avoiding and hesitant to carry out a new
strategic course so long as the present strategy produces acceptable results.
They pay only neglectful attention to market trends and listen to customers
infrequently. Often, they either dismiss new outside developments as
unimportant ("we don't think it will really affect us") or else study them to death
before taking actions. Being comfortable with the present strategy, they focus
their energy and attention inward on internal problem-solving, organizational
processes and procedures, reports and deadlines, company politics, and the
administrative demands of their jobs. Consequently the strategic actions they
initiate tend to be inside-out and governed by the company's traditional
approaches, what is acceptable to various internal political coalitions, what is
philosophically comfortable, and what is safe, both organizationally and career
wise. Inside-out strategies, while not disconnected from industry and competitive
conditions, stop short of being market-driven and customer-driven. Rather,
outside considerations end up being compromised to harmonize internal
considerations. The weaker a manager's entrepreneurial instincts and capabilities,
the greater a manager's trend to engage in inside-out strategizing, an outcome that
raises the potential for reduced competitiveness and weakened organizational
commitment to total customer satisfaction.
How boldly managers embrace new strategic opportunities, how much they
emphasize out-innovating the competition, and how often they lead actions to
improve organizational performance are good standard of their entrepreneurial
spirit. Entrepreneurial strategy-makers are inclined to be first-movers,
responding quickly and opportunistically to new developments. They are willing
to take prudent risks and initiate trailblazing strategies. In contrast, reluctant
entrepreneurs are risk-averse; they tend to be late-movers, hopeful about their
chances of soon catching up and alert to how they can avoid whatever "mistakes"
they believe first-movers have made.
In strategy-making, all managers, not just senior executives, must take prudent
risks and exercise entrepreneurship. Entrepreneurship is involved when a district
customer service manager, as part of a company's commitment to better
customer service, crafts a strategy to speed the response time on service calls by
25 percent and commits $15,000 to equip all service trucks with mobile
telephones. Entrepreneurship is involved when a warehousing manager
contributes to a company's strategic emphasis on total quality by figuring out
how to reduce the error frequency on filling customer orders from one error
every 100 orders to one error every 100,000. A sales manager exercises
strategic entrepreneurship by deciding to run a special promotion and cut sales
prices by 5 percent to get market share from rivals. A manufacturing manager
exercises strategic entrepreneurship in deciding, as part of a companywide
emphasis on greater cost competitiveness, to source an important component
from a lower-priced South Korean supplier instead of making it in-house.
Company strategies can't be truly market - and customer-driven unless the
strategy-related activities of managers all across the company have an outside-
oriented entrepreneurial character and contribute to boosting customer
satisfaction and achieving sustainable competitive advantage.
3.2. Why Company Strategies Evolve
Frequent fine-tuning and adjusting of a company's strategy, first in one
department or functional area and then in another, are quite normal. On occasion,
fundamental changes in strategy are called for—when a competitor makes a
dramatic move, when technological breakthroughs occur, or when crisis strikes
and managers are forced to make radical strategy alterations very quickly.
Because strategic moves and new action approaches are ongoing across the
business, an organization's strategy forms over a period of time and then reforms
as the number of changes begins. Current strategy is typically a combination of
previous approaches, fresh actions and reactions, and potential moves in the
planning stage. Except for crisis situations (where many strategic moves are
often made quickly to produce a substantially new strategy almost overnight) and
new company start-ups (where strategy exists mostly in the form of plans and
intended actions), it is common for key elements of a company's strategy to
emerge in bits and pieces as the business develops.
Rarely is a company's strategy so well-conceived and durable that it can withstand
the test of time. Even the best-laid business plans must be adapted to shifting
market conditions, altered customer needs and preferences, the strategic
maneuvering of rival firms, the experience of what is working and what isn't,
emerging opportunities and threats, unforeseen events, and fresh thinking about
how to improve the strategy. This is why strategy-making is a dynamic process
and why a manager must reevaluate strategy regularly, refining and recasting it as
needed.
However, when strategy changes so fast and so fundamentally that the game plan
undergoes major amendment every few months, managers are almost certainly
guilty of poor strategic analysis, bad decision-making, and weak "strategizing".
Important changes in strategy are needed occasionally, especially in crisis
situations, but they cannot be made too often without creating organizational
confusion and disrupting performance. Well-crafted strategies normally have a
life of at least several years, requiring only minor adjustment to keep them in
tune with changing circumstances.
3.3. What Does a Company's Strategy Consist Of?
Company strategies concern how: how to grow the business, how to satisfy
customers, how to out-compete rivals, how to respond to changing market
conditions, how to manage each functional piece of the business, how to achieve
strategic and financial objectives. The how of strategy tend to be company-
specific, customized to a company's own situation and performance objectives.
In the business world, companies have a wide degree of strategic freedom. They
can diversify broadly or narrowly, into related or unrelated industries, via
acquisition, joint venture, strategic alliances, or internal start-up. Even when a
company elects to concentrate on a single business, current market conditions
usually offer enough strategy-making room that close competitors can easily
avoid carbon-copy strategies—some pursue low-cost leadership, others stress
various combinations of product/service attributes, and still others elect to cater
to the special needs and preferences of narrow buyer segments. Hence,
descriptions of the content of company strategy necessarily have to be
suggestive rather than definitive.
Figure 1-3 shows the kinds of actions and approaches that reflect a company's
overall strategy. Because many are visible to outside observers, most of a
company's strategy can be deduced from its actions and public pronouncements.
Yet, there's an unrevealed portion of strategy outsiders can only speculate about
the actions and moves company managers are considering. Managers often, for
good reason, choose not to reveal certain elements of their strategy until the
time is right.
To get a better understanding of the content of company strategies, see the
overview of McDonald's strategy in Illustration Capsule 3.
3.4. Strategy and Strategic Plans
Developing a strategic vision and mission, establishing objectives, and deciding
on a strategy are basic direction-setting tasks. They map out where the
organization is headed, its short-range and long-range performance targets, and
the competitive moves and internal action approaches to be used in achieving the
targeted results. Together, they constitute a strategic plan. In some companies,
especially large corporations committed to regular strategy reviews and formal
strategic planning, a document describing the upcoming year's strategic plan is
prepared and circulated to managers and employees (although parts of the plan
may be omitted or expressed in general terms if they are too sensitive to reveal
before they are actually undertaken). In other companies, the strategic plan is not
put in writing for widespread distribution but rather exists in the form of
consensus and commitments among managers about where to head, what to
accomplish, and how to proceed. Organizational objectives are the part of the
strategic plan most often spelled out explicitly and communicated to managers
and employees.
However, annual strategic plans seldom anticipate all the strategically relevant
events that will transpire in the next 12 months. Unforeseen events, unexpected
opportunities or threats, plus the constant emerging of new proposals encourage
managers to modify planned actions and make "unplanned" reactions. Postponing
the redrafting of strategy until it's time to work on next year's strategic plan is
both foolish and unnecessary. Managers who confine their strategizing to the
company's regularly scheduled planning cycle (when they can't avoid turning
something in) have a wrongheaded concept of what their strategy-making
responsibilities are. Once-a-year strategizing under "have to" conditions is not a
prescription for managerial success.
4. Strategy Implementation and Execution
The strategy-implementing function consists of seeing what it will take to make
the strategy work and to reach the targeted performance on schedule — the skill
here is being good at figuring out what must be done to put the strategy on
schedule, execute it excellently, and produce good results. The job of
implementing strategy is mainly a practice, close to-the-scene administrative
task that includes the following principal aspects:
1. Building an organization capable of carrying out the strategy
successfully.
2. Developing budgets that steer resources into those internal activities
critical to strategic success.
3. Establishing strategy-supportive policies.
4. Motivating people in ways that stimulate them to pursue the target
objectives energetically and, if need be, modifying their duties and job
behavior to better fit the requirements of successful strategy execution.
5. Tying the reward structure to the achievement of targeted results.
6. Creating a company culture and work climate useful for successful
strategy implementation.
7. Installing internal support systems that enable company personnel to
carry out their strategic roles effectively day in and day out.
8. Performing best practices and programs for continuous improvement.
9. Applying the internal leadership needed to drive implementation
forward and to keep improving on how the strategy is being executed.
The administrative aim is to create "fits" between the way things are done and
what it takes for effective strategy execution. The stronger the fits, the better the
execution of strategy. The most important fits are between strategy and
organizational capabilities, between strategy and the reward structure, between
strategy and internal support systems, and between strategy and the organization's
culture (the latter emerges from the values and beliefs shared by organizational
members, the company's approach to people management, and rooted behaviors,
work practices, and ways of thinking). Fitting the ways the organization does
things internally to what it takes for effective strategy execution helps unite the
organization behind the accomplishment of strategy.
The strategy-implementing task is easily the most complicated and time-
consuming part of strategic management. It cuts across virtually all facets of
managing and must be initiated from many points inside the organization. The
strategy implementer's agenda for action emerges from careful assessment of
what the organization must do differently and better to carry out the strategic
plan proficiently. Each manager has to think through the answer to "What has to
be done in my area to carry out my piece of the strategic plan, and how can I best
get it done?" How much internal change is needed to put the strategy into effect
depends on the degree of strategic change, how much internal practices are on
the wrong track from what the strategy requires, and how well strategy and
organizational culture already match. As needed changes and actions are
identified, management must supervise all the details of implementation and
apply enough pressure on the organization to convert objectives into results.
Depending on the amount of internal change involved, full implementation can
take several months to several years.
5. Evaluating Performance, Reviewing New Developments,
and Initiating Corrective Adjustments
None of the previous four tasks are one-time exercises. New circumstances call
for corrective adjustments. Long-term direction may need to be altered, the
business redefined, and management's vision of the organization's future course
narrowed or broadened. Performance targets may need raising or lowering in
light of past experience and future prospects. Strategy may need to be modified
because of shifts in long-term direction, because new objectives have been set,
or because of changing conditions in the environment.
The search for ever better strategy execution is also continuous. Sometimes an
aspect of implementation does not go as well as intended and changes have to be
made. Progress is typically uneven—faster in some areas and slower in others.
Some tasks get done easily; others prove difficult. Implementation has to be
thought of as a process, not an event. It occurs through the gross effects of many
managerial decisions and many actions on the part of work groups and individuals
across the organization. Budget revisions, policy changes, reorganization,
personnel changes, reengineered activities and work processes, culture—
changing actions, and revised compensation practices are typical actions
managers take to make a strategy work better.
[ PART I ] [ PART II ] [ PART III ]
