Creating Strategy: Common Approaches

Strategic Management

Strategic management entails five steps: analysis, formation, goal setting, structure, and feedback.

Learning Objectives

Identify the five general steps that allow businesses to develop a strategic process

Key Takeaways

Key Points

  • Strategic management analyzes the major initiatives, involving resources and performance in external environments, that a company’s top management takes on behalf of owners.
  • The first three steps in the strategic management process are part of the strategy formulation phase. These include analysis, strategy formulation, and goal setting.
  • The final two steps in strategic management constitute implementation. These steps include creating the structure ( internal environment) and obtaining feedback from the process.
  • By integrating these steps into the strategic management process, upper management can ensure resource allocation and processes align with broader organizational purpose and values.

Key Terms

  • objectives: The goals of an organization.
  • implementation: The process of moving an idea from concept to reality. In business, engineering, and other fields, implementation refers to the building process rather than the design process.

Strategic management analyzes the major initiatives, involving resources and performance in external environments, that a company’s top management takes on behalf of owners. It entails specifying the organization ‘s mission, vision, and objectives, as well as developing policies and plans which allocate resources to drive growth and profitability. Strategy, in short, is the overarching methodology behind the business operations.

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Strategic management framework: The above model is a summary of what is involved in each of the five steps of management: 1. analysis (internal and external), 2. strategy formation (diagnosis and decision-making), 3. goal setting (objectives and measurement), 4. structure (leadership and initiatives), and 5. control and feedback (budgets and incentives).

Five Steps of Strategic Management

As strategic management is a large, complex, and ever-evolving endeavor, it is useful to divide it into a series of concrete steps to illustrate the process of strategic management. While many management models pertaining to strategy derivation are in use, most general frameworks include five steps embedded in two general stages:

Formulation

  1. Analysis – Strategic analysis is a time-consuming process, involving comprehensive market research on the external and competitive environments as well as extensive internal assessments. The process involves conducting Porter’s Five Forces, SWOT, PESTEL, and value chain analyses and gathering experts in each industry relating to the strategy.
  2. Strategy Formation – Following the analysis phase, the organization selects a generic strategy (for example, low-cost, differentiation, etc.) based upon the value-chain implications for core competence and potential competitive advantage. Risk assessments and contingency plans are also developed based upon external forecasting. Brand positioning and image should be solidified.
  3. Goal Setting – With the defined strategy in mind, management identifies and communicates goals and objectives that correlate to the predicted outcomes, strengths, and opportunities. These objectives include quantitative ways to measure the success or failure of the goals, along with corresponding organizational policy. Goal setting is the final phase before implementation begins.

Implementation

  1. Structure – The implementation phase begins with the strategy in place, and the business solidifies its organizational structure and leadership (making changes if necessary). Leaders allocate resources to specific projects and enact any necessary strategic partnerships.
  2. Feedback – During the final stage of strategy, all budgetary figures are submitted for evaluation. Financial ratios should be calculated and performance reviews delivered to relevant personnel and departments. This information will be used to restart the planning process, or reinforce the success of the previous strategy.

Combining Internal and External Analyses

Using combined external and internal analyses, companies are able to generate strategies in pursuit of competitive advantage.

Learning Objectives

Apply a comprehensive understanding of internal and external analyses to the effective formation of new strategic initiatives

Key Takeaways

Key Points

  • Organizations must carefully consider what internal assets are available that will differentiate them from the competition, within the same competitive environment.
  • Similarly, organizations must understand the context in which they operate if they aspire to acquire competitive advantage over other incumbents.
  • By understanding how internal and external factors relate, companies can piece together the ideal way in which their strengths can capture opportunities while offsetting threats and rectifying weaknesses.
  • Implementing strategies that take into account both the internal and external environments will likely achieve competitive advantage and improve an organization’s ability to adapt. This is profit-generating strategic thinking.

Key Terms

  • internal: Concerned with the non-public affairs of a company or other organization.
  • external: Concerned with the public affairs of a company or other organization.

Organizations must carefully consider what internal assets will differentiate them from the competition, within the same competitive environment. This internal analysis requires careful consideration of the following models and factors:

  • Core mission
  • Overall strategy
  • Porter’s competitive strategies
  • SWOT analysis
  • Forecasts
  • Resource-based view
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SWOT Analysis: Here is an example of the SWOT analysis matrix, which arranges strengths, weaknesses, opportunities, and threats.

Similarly, organizations must understand the context in which they operate if they aspire to acquire competitive advantage over other incumbents. Models such as the following outline these concerns effectively:

  • Porter’s five forces (and limitations)
  • PESTEL and SCP
  • Competitive dynamics

Merging Analyses for Competitive Advantage

These inputs generally outline each of the specific analyses a company should conduct to understand its internal and external environments. Combining these two constitutes context analysis, which is a method of analyzing the environment in which a business operates. Environmental scanning focuses mainly on the macro-environment of a business. Context analysis considers the entire environment of a business, both internal and external.

Using context analysis, alongside the necessary external and internal inputs, companies are able to generate strategies which actively capitalize on this knowledge in pursuit of competitive advantage. This strategic development requires companies to understand the opportunities and threats in the external environment and benchmark these against the strengths and weaknesses of their internal environment. By understanding how internal and external factors relate, companies can piece together the ideal way in which their strengths can capture opportunities while offsetting threats and rectifying weaknesses.

This melding of internal and external factors in pursuit of competitive advantage is an ongoing process, as the company must evolve and change in concert with the environment. As a result, strategic management is the process of constantly assessing both environments to ensure that the company retains a unique competitive position in which to generate value for stakeholders and customers. This implementation of strategies that take into account both the internal and external environments eventually achieves dynamic capabilities for the companies involved.

Change is costly, so firms must develop processes to find low pay-off changes. The ability to change depends on the ability to scan the environment, evaluate markets, and quickly accomplish reconfiguration and transformation ahead of the competition. These actions can be supported by decentralized structures, local autonomy, and strategic alliances.

Implementing Strategy

Strategic planning involves managing the implementation process, which translates plans into action.

Learning Objectives

Define the necessary processes involved in executing and implementing a newly created strategy

Key Takeaways

Key Points

  • The implementation process requires establishing or modifying the organizational hierarchy, allocation of resources, accountability, and control processes.
  • Depending on industry and geographic location, implementation often requires integrating an organization with other firms via strategic partnerships (suppliers, joint ventures, acquisitions, etc.).
  • To implement a strategy requires moving beyond the theoretical and research-based view. This demands practical pragmatism on the part of senior strategists.
  • Action plans that describe the way processes are transformed into tangible operations are a critical success factor and often a point of difficulty for conceptual strategists.

Key Terms

  • hierarchy: An arrangement of items in which the items are represented as being “above,” “below,” or “at the same level as” one another.
  • implementation: The process of moving an idea from concept to reality. In business, engineering, and other fields, implementation refers to the building process rather than the design process.
  • execute: To carry out; to put into effect.

The implementation process requires establishing or modifying an organizational hierarchy so the company can achieve its objectives. The following stages constitute the strategic implementation process:

  • Allocating and managing sufficient resources (financial, personnel, operational support, time, technology support)
  • Establishing a chain of command or some alternative structure (such as cross-functional teams)
  • Assigning responsibility of specific tasks or processes to specific individuals or groups. Accountability is critical to the action plan process.
  • Creating a feedback loop for control processes

Strategy implementation also involves managing the overall process. Process management comprises monitoring results, measuring benchmarks, following best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. When an organization implements specific programs, it must acquire the requisite resources, develop the process, train, and perform process testing, documentation, and integration with legacy processes.

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A visual depiction of the strategic management process: The strategic management process never ends. The process restarts after a plan ends, when the company reviews the results and re-evaluates its position.

Additionally, businesses must consider the exact means of implementing a strategy, which may entail:

  • Alliances with other firms to fill capability/technology/resource/legal gaps
  • Investment in internal development
  • Mergers/acquisitions of products or firms to reduce time to market
  • Doing business with protectionist countries such as India and China, which require market entrants to operate via partnerships with local firms

Executing a Strategic Plan

One of the core goals when drafting a strategic plan is to develop it in a way that is easily translated into action plans. Most strategic plans address high-level initiatives and overarching goals but are not always translated into the day-to-day projects and tasks required to achieve the plan.

Poor terminology or word choice and the wrong level of writing are both examples of ways to fail to translate a strategic plan so that it makes sense and is executable. Often, plans are filled with conceptual terms that do not connect to day-to-day realities for the staff that is expected to carry out the plans. Strategists need to be both practical and pragmatic when devising strategy for effective implementation.

Put simply, walking the talk is easy to say and difficult to accomplish. Strategy formulation must always consider the implementation phase as the primary framework. Action plans that describe the way processes are transformed into tangible operations are a critical success factor and often a point of difficulty for conceptual strategists.

Maintaining Control

Controlling requires taking an aerial view of operational processes, identifying gaps and weaknesses to improve efficiency.

Learning Objectives

Apply the concept of maintaining control to planning and strategy

Key Takeaways

Key Points

  • Dissonance is often present between the way in which the company ideally wants to operate from a strategic perspective and the way it actually does.
  • Planning and controlling are closely linked. Planning is the benchmark which controlling uses to outline deviations. In this sense, they are two sides of the same strategic process of improvement.
  • Once a company designs a strategic plan parallel with the corporate mission and vision, the implementation process requires both control and planning to ensure it is appropriately communicated and executed.
  • Managers are tasked with ensuring that the organizational processes reflect the mission statement and vision as closely as possible, controlling aspects of the operations in pursuit of this goal.

Key Terms

  • planning: The act of formulating a course of action, or of drawing up plans.
  • controlling: To exercise influence over, to suggest or dictate the behavior of.

Controlling is one of the primary theoretical managerial functions (alongside planning, organizing, staffing, and directing). Maintaining control is about identifying deviations from intended results and improving the process to achieve desired outcomes. According to modern concepts, control is a foreseeing action; an earlier concept of control identified it as chiefly detecting errors.

Control in management means setting standards, measuring actual performance, and taking corrective action. Control thus comprises three main questions: Where are we now? Where did we plan to be? How can we bridge the gap between the two? Control is inherently cyclical.

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Monitoring and controlling project activities: These steps are involved in management control of project activities.

Robert J. Mockler on Control

Robert J. Mockler presented a more comprehensive definition of managerial control. He defined it as a systematic effort by business management to compare performance to predetermined standards, plans, or objectives to assess whether performance is in line with these standards and presumably to take any remedial action required. According to Mockler, the purpose of control is to ensure that human and other corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives.

Relationship Between Planning and Controlling

Mockler’s definition shows the close link between planning and controlling. Planning is a process which establishes an organization ‘s objectives and the methods to achieve those objectives. Controlling is a process that measures and directs the actual performance against the planned goals of the organization. Thus, goals and objectives are often referred to as Siamese twins of management: managing and correcting performance to make sure that enterprise objectives and the goals designed to attain them are accomplished.

Application to Strategy

Control, relative to strategy, defines the latter stage of overall strategy. Once a company designs a strategic overview parallel with the corporate mission and vision, the implementation process requires control to ensure that strategy is appropriately communicated and executed. The direction of organizational control derives from the strategic plan of the organization. Control is an active process that evaluates current performance against this strategic backdrop to ascertain how closely the operations represent the desired functioning of the company.

Dissonance is often present between the way in which the company ideally wants to operate from a strategic perspective and the way it actually does. This is where control comes into play. Managers are tasked with ensuring that the organizational processes reflect the mission statement and vision as closely as possible, controlling aspects of the operations in pursuit of this goal. As a result, maintaining control is a constant responsibility that keeps the business as close as possible to its core strategies.