The Strategic Management Process

Strategic management refers to the managerial process which forms a strategic vision, mission, set objectives, craft and execute the strategy and then take any corrective adjustments to the process.

THE VISION:

DefinitionThe vision provides long-term direction. It is a commitment to a dream. It involves asking “what do we want to be like in a few years?” It reflects management’s aspirations for the organization and its business.

Importance of a Vision:

Without a vision, companies are prone to drift aimlessly and lose any claim to being an industry leader. Managers need to think strategically about the impact of new technologies, how customer needs and expectations are changing, and what will it take to overtake competitors. Thus, the vision serves as a beacon to guide resource allocation and also as a basis for crafting a strategy to get the company where it needs to go.

Characteristics of the Vision:

THE MISSION

SETTING OBJECTIVES

The purpose of setting objectives is to convert managerial statements of strategic vision and business mission into specific performance targets the organization wants to achieve.

Importance

These are important because they push an organization to be more inventive; more focused in its actions.

Types:

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Financial – signals commitment to growth earnings, return on investments, dividend growth

Strategic – is concerned with competitiveness, exercising technology, leadership, improve business position.

CRAFTING A STRATEGY

How to achieve the objectives. Strategy is proactive and reactive. To achieve objectives involves collective learning of the organization overtime.

Crafting involves actively searching for opportunities to do new things or to do existing things in new ways. The faster a company’s business environment is changing, the more critical it becomes for its managers to be good entrepreneurs in making both predictions and timely strategic adjustments. It entails studying market trends, listening to customers and anticipating their changing needs and expectations, scrutinizing the business possibilities that spring from technological developments, building the firms market position via acquisitions.

Strategy and Entrepreneurship

This involves actively searching for opportunities to do new things or do existing things in new ways. The faster a company’s business environment is changing, the more critical it becomes for its managers to be good entrepreneurs in making both predictions and timely strategic adjustments

Implementing and Executing the Strategy

The focus is what will it take to develop the needed organizational capabilities and to reach the targeted objectives on schedule. It includes thefollowing principal aspectsMotivating people in ways that induce them to purse the target objectives energetillyTying the reward structure to the achievement of targeted results, creating a company culture and work climate conducive to successful strategy implementation and executive; exerting internal leadership

Good strategy execution involves creating a strong “fit” between the way things are done internally and what it will take for the strategy to succeed.

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Evaluating Performance, Monitoring New Developments, and Initiating Corrective Adjustments

This invlolves revising budgets, changing policies, reorganizing, making personnel changes.

How Strategies Get Crafted:

Chief Architect Approach – this is characteristic of companies that have been founded by the company’s present CEO. Dis: caliber (degree of worth) of the strategy depends heavily on one person’s entrepreneurial acumen (keen judgement/insight); it also breaks down in enterprises with diverse product lines since one person cannot orchestrate the strategy-making process.

Delegation Approach – a team of consultants brought in specifically to help develop new strategic initiatives. This allows for broad participation from many managers and personnel with specialized expertise and on the scene knowledge. However, with this approach, subordinates may deal more with how to address today’s problems than with positioning the enterprise to capture tomorrow’s opportunities.Dis: lack of sufficient top-down direction on part of senior executives; runs the rise that the outcome will be shaped by influential subordinates that have a common interest in promoting their particular version of what the strategy ought to be.

Collaborative/Team Approach – enlists the assistance and advice of key peers and subordinates in hammering out a consensus strategy. This is well satiated wehre strategic issues cut across departments, product lines etc. Dis: conducive to political strategic choices; there is slower reaction and response times as group members meet to debate the merits of what to do.

Corporate Intrapreneur Approach – top management encourages individuals and teams to develop and champion proposals for new product lines and new business ventures. This approach works well in enterprises where technological advances are coming at a fast and furious pace.Dis: may not result in achieving clear strategic direction for the company

Benefits of a Strategic Approach to Managing

Provides better guidance to the organization on what they are trying to doManagement more alert to new opportunities and threatsUnifes the organizationCreates proactive management posture

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Promote development of a constantly evolving business model

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Today’s managers have to think strategically about their company’s position and about the impact of changing conditions. They have to monitor the company’s external environment and internal capabilities closely enough to know when to institute strategy changes. They have to know the business well enough to determine what kinds of strategic changes to initiate. Simply said, the fundamentals of strategic management need to drive the whole approach to managing organizations. The chief executive officer of one successful company put it well when he said:

In the main, our competitors are acquainted with the same fundamental concepts and techniques and approaches that we follow, and they are as free to pursue them as we are. More often than not, the difference between their level of success and ours lies in the relative thoroughness and self-discipline with which we and they develop and execute our strategies for the future.

 The advantages of first-rate strategic thinking and conscious strategy management (as opposed to freewheeling improvisation, gut feel, and hoping for good luck) include

(1) providing better guidance to the entire organization on the crucial point of “what it is we are trying to do,”

(2) making managers and organizational members more alert to new opportunities and threatening developments,

(3) helping to unify the organization,

(4) creating a more proactive management posture,

(5) promoting the development of a constantly evolving business model that will produce sustained bottom-line success for the enterprise, and

(6) providing managers with a rationale for evaluating competing budget requests—a rationale that argues strongly for steering resources into strategy-supportive, results-producing areas.

  Trailblazing strategies can be the key to better long-term performance. Business history shows that high-performing enterprises often initiate and lead, not just react and defend. They launch strategic offensives to out-innovate and out-maneuver rivals

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and secure sustainable competitive advantage, then use their market edge to achieve superior financial performance. Aggressive pursuit of a creative, opportunistic strategy can propel a firm into a leadership position, paving the way for its products and services to become the industry standard. High-achieving enterprises are nearly always the product of astute, proactive management, rather than the result of lucky breaks or a long run of good fortune.

  Two factors separate the best-managed organizations from the rest:

(1) superior strategy making and entrepreneurship, and

(2) competent implementation and execution of the chosen strategy.

There’s no escaping the fact that the quality of managerial strategy making and strategy implementing has a significant impact on organization performance. A company that lacks clear-cut direction, has vague or undemanding objectives, has a muddled or flawed strategy, or can’t seem to execute its strategy competently is a company whose performance is probably suffering, whose business is at long-term risk, and whose management is lacking. In short, the better conceived a company’s strategy and the more proficient its execution, the greater the chances the company will be a leading performer in its markets and truly deserve a reputation for talented management.

The non-profit making organizations make decisions based on a mission rather than on strategy. Acting without a clear long term strategy can stretch an agency’s core capabilities and push in in unintended directions. The difference between the level of success among these agencies lies in the relative thoroughness and self-discipline with which they can develop and execute their strategies.

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Management's direction-setting tasks involve (1) charting a company's future strategic path, (2) setting objectives, and (3) crafting a strategy.

STRATEGIC VISION

Early on in the direction-setting process, managers need to address the question "What is our business and what will it be?" Management's views and conclusions about the organization's future course, the market position it should try to occupy, and the business activities to be pursued constitute a strategic vision for the company.

A strategic vision indicates management's aspirations for the organization, providing a panoramic view of "what businesses we want to be in, where we are headed, and the kind of company we are trying to create."

It spells out a direction and describes the destination. Effective visions are clear, challenging, and inspiring; they prepare a firm for the future, and they make sense in the marketplace.

A well-conceived, well-worded mission/vision statement helps managers manage-serving as a beacon of the enterprise's long-term direction, helping channel organizational efforts and strategic initiatives along the path management has committed to following, building a strong sense of organizational identity and purpose, and creating employee buy-in.

Missions should be clear, both in terms of intentions and words used. Effective mission statements, generally, identify the subject of the service or products, which the enterprise is set up to provide. The mission statements for non-profits are usually spelt out in the form of a cause such as “Fight homelessness”. The mission should reflect a commitment to those who provide the resources.SOS KINDERJDORFOriginal Mission: to provide orphaned, abandoned, and destitute children with a new and permanent home, and lay a sound foundation for a useful and productive life”

Vision: more personalized children village; not traditional orphanage

Program: each village had 10 – 15 homes; each home housed 6 – 8 children; each family cared for by a single woman, woman received training.

Non-profit range of activities were broaden:Change program based on educational need; open schools, training centers; and extended schools to neighborhood children, some paid tuition; added medical centers

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60% spend on core services; 40% on schools, medical services etc

Kinderdorf could have continued to broaden its range of activities until the organization became too stretched to be effective in addressing the core dimensions of its broad mission. Thus one fundamental characteristic of a mission of non-profit organizations is that it should not be stretched too far that it pushes the organization beyond its limit. The mission should neither be too narrow that it restricts the organization’s activites, nor too broad to make itself meaningless.

Problems with Missions of Non-profit Organizations

Another characteristic of a mission statement is that it should be motivating for members of the organization and of society, and they should feel it worthwhile working for such an organization.

As the mission inspires founders to create the organization, nonprofits have strong reasons to stay loyal to their missions. The founders often deliberately ensure that their original vision is embraced in the next generation of leaders, sometimes by using products of the very system who reflect the core values and culture. Thus, the core mission becomes cemented into the consciousness of the entire organization.

At Kinderdorf, Kutin who was also an orphan was groomed to become the successor. Kutin groomed Pichler, who was from the village, as Secretary General.

However, this “mission stickiness” could result in the organization become rigid and falling behind in changing times. Stickiness is the packaging that makes an idea memorable and irresistible.

One prime example of mission stickiness is Planned Parent Hood in which they were called to adjust their programs due to the changes in the market environment. They refused the recommendations of the task force as they felt that the changes were causing the organization’s mission to become diluted.

The combination of stickiness to the mission and stretchiness to market demands can undermine a nonprofit’s effectiveness. Before it can move forward it must unstuck the inertia at its center and tehn creep forward one step at a time.

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CHAPTER 2

Usually, the next step in the strategic making process is the establishment of objectives. However, the case takes us to the development of an operational mission.

The second direction-setting task is to establish strategic and financial objectives for the organization to achieve.

This may be likened to the operational mission referred to in the case. The operational mission

Objectives convert the mission statement and strategic vision into specific performance targets. The agreed-on objectives need to spell out precisely how much by when, and they need to require a significant amount of organizational stretch. Objectives are needed at all organizational levels.

The third direction-setting step entails crafting a strategy to achieve the objectives set in each area of the organization. A corporate strategy is needed to achieve corporate-level objectives; business strategies are needed to achieve business-unit performance objectives; functional strategies are needed to achieve the performance targets set for each functional department; and operating-level strategies are needed to achieve the objectives set in each operating and geographic unit. In effect, an organization's strategic plan is a collection of unified and interlocking strategies. Typically, the strategy-making task is more top-down than bottom-up. Lower-level strategies should contribute to the achievement of higher-level, companywide objectives.

Strategy is shaped by both external and internal considerations. The major external considerations are societal, political, regulatory, and community factors; competitive conditions and overall industry attractiveness; and the company's market opportunities and threats.

The primary internal considerations are company strengths, weaknesses, and competitive capabilities; managers' personal

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ambitions, philosophies, and ethics; and the company's culture and shared values. A good strategy must be well matched to all these situational considerations. In addition, a good strategy must lead to sustainable competitive advantage and improved company performance.

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Application of the Five Forces Model

According to Porter, the strength of competition is a composite of five forces: the rivalry among competing sellers, the presence of attractive substitutes, the potential for new entry, the competitive pressures stemming from supplier-seller collaboration and bargaining, and the competitive pressures stemming from seller-buyer collaboration and bargaining.

The Porter model could be said to be characteristic of a profit and product oriented market. The nonprofit sector may possess distinct features that, together, make competition in this sector different from that faced by a non-profit business. However, as pointed out in the case, nonprofits too are faced by market forces, and hence the Porter Model is still seen as applicable as shows below:

Threat of New Entrants: Although some capital may be required to secure a location and facilities as the organization matures, the nonprofit organization may be seen as a sector which is relatively easy to enter.

Bargaining Power of Suppliers, in the case of the nonprofit organization could be renamed as “Bargaining power of donors”. This may be akin to the market pull identified in the case. In the Porter’s model, suppliers-seller relationships represent a weak or strong competitive force when suppliers can exercise sufficient bargaining power to influence the terms of conditions of supply in their favour. In the same way, non-profits, in an effort to attract new donors, may take on programmes that do not fit their existing capabilities and expertise well. For example, the grant that STRIVE received from Ford was significant for them. However, it forced them to broadened their focus which proved very challenging. According to the case, small nonprofits are more susceptible to this type of market pull which causes them to loose their focus, than large non-profits who are able to shoulder the demands of donors and trustees.

In addition, there could be rivalry among competing sellers – While in for-profit organization, competition may be centred on price. In the nonprofit organization competiton may exist wehre agencies may be fighting for the same grants from the same donor agencies. In addition, they may also be fighting for the same clients to target. The greater the benefits of going after a new cause the more likely that one or more rivals will initiate moves to capture it. As identified in the, when HIV/AIDS prevention became an important issue, many agencies, new and old, staked claims for available funding.

Threat of substitute products or services. In the five forces model, competitive pressures from substitute products depends on three factors (1) whether attractively priced substitutes are available; (2) whether buyers view the substitutes as being satisfactory in terms of quality , performance, and other relevant attributes; and (3) whether buyers can switch to substitutes easily. However, nonprofits provide services rather than products. As a result, substitution may occur where organizations provide the same service to the same client or have the same mission.

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The task of competition analysis is to understand the competitive pressures associated with each force; determine whether these pressures add up to a strong or weak competitive force in the marketplace, and then think strategically about what sort of competitive strategy, given the rules of competition in the industry, the company will need to employ to (a) insulate the firm as much as possible from the five competitive forces, (b) influence the industry's competitive rules in the company's favor, and (c) gain a competitive edge.

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