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The concept of strategic management

发布时间:2017-04-07
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Explain the concept of "strategic management" describing in particular the three key elements that underpin it as a process?

The concept of strategic management is the process by which an organisation is managed from a top down, strategic, viewpoint. It mainly focuses on developing and implementing strategies designed to increase the organisation’s performance, achieve its aims and create value for its stakeholders. As a result, strategic management requires an understanding of both the organisation’s capabilities, and the market conditions in which it operates. This has led to the creation of the two major theories underlying strategic management: Michael Porter’s ‘Five Forces’ competitive positioning model and the resource-based view of the firm, discussed by Jay Barney and others.

The three key elements of strategic management are driven by the three main strategic questions firms must answer in order to formulate a strategy. These questions are: where are we now, where do we want to be, and how do we get there. These questions lead to the three key elements of the strategic management process: strategy diagnosis, strategy formulation, and strategy implementation.

Diagnosis involves analysing both the internal capabilities of the organisation and the external environment in which it operates, with a view to identifying the critical strategic issues to be addressed. A useful analytical tool for this element is the SWOT analysis, which identifies the strengths and weaknesses of the firm, together with external opportunities and threats. Several multinational companies, including Coca-Cola, will often conduct a SWOT analysis before launching a new product, such as Dasani, Coca-Cola’s attempt to enter the bottled water market.

Formulation involves the production of a clear set of recommendations, based on the results of the diagnosis phase. These recommendations normally focus on three main levels within the business: corporate level strategy, business unit level strategy and functional level strategies depending on the size and scale of the organisation. Major corporations with several strategic business units in various countries will often have quite complex strategy formulation processes. For example, large conglomerates such as Unilever, Proctor and Gamble and Nestle will formulate an overall strategy, with business unit level strategies for each country and functional strategies for individual brands within these countries.

Finally, implementation involves the successful transformation of a strategic plan into reality. This is a vital part of the strategic management process, as failure to successfully implement a plan will undermine all the work that has gone into diagnosis and formulation. The implementation plan will need to consider all relevant factors, including resources and the need to obtain any extra resources, together with realistic timelines, dependencies and control plans. There are several major management consultancies, such as Deloitte and PwC, which specialise in managing the implementation of large strategic management project.

The primary resource allocation tool is the budgeting system. Examine in detail the key elements and steps of the budget process for strategy implementation, ensuring that you also cover the key strategic factors which fundamentally affect it?

There are six key steps in budgeting for strategy implementation: planning, strategising, preparing, proposing, refining and finalising. The planning phase will likely take place at the same time as the diagnosis phase: as issues are identified and their criticality is assessed, the team responsible for the budget will incorporate said issues and the likely costs of addressing them into the preliminary budget. This phase will determine the structure of the budget, and also the major areas of expenditure.

Strategising will take place as part of the formulation process: the recommendations drawn up during formulation will be fed into the budgeting process, and will determine the strategic direction and imperatives behind the budget. For example, if the formulation process implies a major strategic shift, such as to a decentralised organisational structure, then the budgeting for this process will acquire a significant strategic importance, as it is very important to properly resource and develop such a shift.

The preparation phase involves further refinement of the budget, such as obtaining quotes from suppliers and validating proposed costs with the relevant departments. At this stage, which will still take place as part of the formulation process, control and communication will be very important; as care must be taken not to reveal sensitive or controversial parts of the strategy. Also, if the company is proposing a major strategic shift which is designed to acquire more market share from competitors, releasing this information to suppliers and the external market in general can reduce the potential benefits from this strategic shift.

The proposing process will be the final step before drawing up an implementation plan for any proposed strategic changes, and involves presenting the budget to all relevant stakeholders and obtaining their approval or support. Due to the diverse nature of many large corporations and the conflicting interests of their various stakeholder groups, there may be objections raised to the budget; and indeed to the proposed changes as a whole. As a result, a key part of the proposing process is handling these objections and minimising their impact; without losing too much of the strategic impetus behind the proposed changes.

The refining process is where any changes and compromises arising from the proposing process will be carried out before being approved again by the relevant stakeholders. The key strategic factor here is the need to ensure that all stakeholders are behind the strategic management process, without compromising the integrity and effectiveness of the process itself. As a result, this is where many bold strategic management programs find themselves in difficulty, as the recommendations they produce are diluted and reduced in effectiveness by various political and stakeholder concerns.

Finalising takes place as part of the implementation process, and can involve further flexing of the budget as implementation progresses. The main strategic change here is that the budget is approved by the major stakeholders and released to the project sponsor and project management team to manage as part of the implementation process. As such, the project sponsor is often delegated limited authority to adjust the budget as the strategic management process moves forward, enabling the process to proceed smoothly toward its objectives.

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