5.2.2 The process of strategic management
Strategic management is ongoing. It is a process. This is an important point to remember. The practice of strategic management within an organisation is completed on a continuous basis. The strategic management process includes feedback and an awareness that each step in the process has both major and minor impact on other operations. It is a 'continuous loop' system.
Strategic management is a set of decisions and actions that result in the formulation, implementation, evaluation and control of plans.
All organisations have their own unique approach to planning and often have their own terminology. For example, often what one organisation will refer to a goal another might call a strategic goal or even a strategic objective. There are a myriad of textbooks and journal articles on strategic management and the planning process. Many differ in their interpretation and the terminology they are using; and this can be extremely confusing and frustrating.
We cannot say that one is 'correct'. What is important is that organisational members understand the terminology used within their own organisation so that everyone can head in the same direction. We consider one approach in this chapter. As we work through the strategic management process in this section, you will be referred to relevant sections in your textbook. Be prepared to 'jump around' the chapters a little and for some confusion as you grapple with the variety of terminology. Think about the terms used and how they apply in your organisation and other places where you have worked.
The strategic management process generally consists of the following critical tasks:
- the formulation of the organisation's mission statement , including a broad statement about its philosophy for the future;
- the assessment of the organisation's external environment, including both the competitive and general contextual factors, often referred to as an eternal analysis or assessing external factors;
- the development of a company profile that reflects internal conditions and capabilities, often called an internal analysis or assessing organisational factors;
- the establishment of goals and objectives;
- the selection of a strategy;
- the implementation of the strategy; and
- the evaluation and control of the strategy.
The steps 1-5 are the formulation part of strategic management. These are followed by the implementation of the plan (step 6). The plan is implemented through effective human resource management, leadership and the organisational structure. The next major part of the process is the evaluation and control of the plan. Your textbook brings steps 6 and 7 together, including evaluation and control as part of the implementation stage. Many authors consider these separate steps. We will cover evaluation and control in the final chapter. We mention it in this chapter to bring the process together.
Before we begin our discussion one should bear in mind that:
Strategic thinking lives through dialogue or dies through writer's cramp.
David Moore
1. The mission statement.
A good mission statement defines the overall character of the organisation and what the organisation aims to achieve and for whom. The mission is the basic socio-economic purpose of the organisation that provides organisational members with a general direction. It is the organisation's unique vision for the future and is often referred to as the reason for existence.
Every organisation exists in order to accomplish something. At the beginning it is usually clear what the organisation's mission is. Over time, a firm's mission or reason for existence may become unclear.
Peter Drucker, a successful consultant and author on management, believes that the failure to examine the question: What is our business? is the most important single cause of poor performance and frustration in achieving organisational objectives.
Consider this
Do you agree with Ducker's idea? Do you consider that asking such a question would help to define the overall character of the organisation and what it aims to achieve? Attempt to answer this question for your organisation.
Ducker's work has received some criticism with claims that answering the question What business are we in? is difficult to put into practice.
The following types of questions may help to better determine your organisation's mission statement in today's competitive environment:
- What kind of organisation are we and what is our purpose?
- What do we stand for and what are our beliefs and values?
- Who are our customers?
- What separates us from our competitors?
- What is our long-term vision? What are we striving to become?
A good mission statement should also consider employees; that is, the statement should be motivating for staff and provide guidance. The mission of an organisation should be continually evaluated in terms of the changing environment. The mission may prevent the organisation from 'drifting without direction'.
The key question to ask in developing a mission statement should be: What and where do we want to be in the future?
The importance of mission statements
An aside: Breaking rocks
Three people were breaking rocks. I asked the first man what he was doing. He said, 'I am breaking rocks'. I asked the second the same question; she answered, 'I am earning a income'. Then I asked the same question of the third man; he answered, 'I am helping to build a cathedral'.
Mission statements are important because they:
- develop unanimity of purpose across all levels of the organisation;
- provide focus in directing new ventures and activities;
- provide an objective basis for resource allocation - supporting those ventures which enhance the mission;
- attract and screen prospective employees; and
- reinforce organisational culture.
Activity 5.1
Iverson is one of the classic visionaries of American business and his company, Nucor, has challenged traditional assumptions about steel making. Iverson stated:
...One student called and he said: 'Well, could we have a copy of your Mission Statement?'...I said, 'We don't have any mission statement.' And if you look at most of the mission statements...they're a bunch of nonsense...and they really bear hardly any relation to what the company is doing or how it is operated'.
Now consider:
'Forgo management @#$$%&*& - no mission statements, no fancy jargon, no consultants'.
Rupert Murdoch
One could argue that great companies such as Nucor do not need mission statements to turn their goals into reality as long as they have other appropriate means of communication. After completing the readings below, prepare arguments supporting the necessity of a mission statement and arguments against.
Reading 5.1
Shapiro, Eileen (1996, February). ' Mission indecipherable?' The Qantas Club , pages 37-39.
Deal, Jack (2001). 'How to create and use a mission statement'. The Small Business Journal . URL: http://www.tsbj.com/editorial/03040503.htm (accessed 2001, 3 April). [2 pages]
Foxx, Jeff (2001). 'A shared vision'. Business Leader Online . URL: http://www.businessleader.com/blsep96/shared.html (accessed 2001, 3 April). [3 pages]
Johnson , Del Hunt (2001). ' Mission : possible'. Business Leader Online . URL: http://www.businessleader.com/blsep96.mission.html (accessed 2001, 3 April). [5 pages]
Now turn to your book of readings for some examples of different mission statements (The Australian Maritime Safety Authority and the Port of Singapore Authority ). For those that access the Web you will find many examples.
Reading 5.2
Compilation of various web sites on planning and setting organisational mission statements.
- Creating business plans links, resources and articles http://www.businesstown.com/planning/creating.asp
- One page business plans, some examples http://www.onepagebusinessplan.com/sample_plans.html
- Basics of developing mission, vision and values statements http://www.mapnp.org/library/plan_dec/str_plan/stmnts.htm
- Performance Anxiety or being beaten up with numbers http://www.une.edu.au/clg/lgconf/papers/francis.htm
- Setting SMART goals, a guide http://www.goal-setting-guide.com/smart-goals.html
- Dummies how to set SMART goals http://www.dummies.com/WileyCDA/DummiesArticle/id-785.html
- Sample business plans http://www.bplans.com/sp/businessplans.cfm
Consider
Refer to David's nine components of a mission statement on page 174 of your text. Can you recognise these in your organisation's mission? What do you think of this approach? Do you like the way it organises your thoughts or do you find it too prescriptive?
Key management concept
A strategic vision is a roadmap of the future - the direction an organisation is headed, the business position it intends to stake out and the capabilities it plans to develop.
2. & 3. Internal and external analysis: Environmental assessment - the SWOT analysis.
An environmental analysis aims to assess the internal and external environments of the organisation. The internal analysis focuses on the strengths and weakness of the organisation's internal environment. The external analysis considers opportunities and threats generated from the external environment.
A common technique for analysing the internal and external environments is a SWOT analysis (that is, S trengths, W eaknesses, O pportunities and T hreats ). Alternatively, what is sometimes referred to as a WOTS up analysis .
This involves looking at your internal strengths and weakness and the opportunities and threats presented by the external environment. The SWOT analysis gives you an idea of your capabilities and the strategic direction your organisation is capable of pursuing. It provides information that will help the organisation to:
- select a set of long-term strategic goals and specific objectives to achieve goals;
- select long term strategies in order to achieve the goals and the corporate mission;
- implement the strategic choices by means of budgeted resource allocations, by which the matching of tasks, people, structures, technologies and reward systems is emphasised; and
- evaluate and control the success of the strategic process and implement the necessary control mechanisms to keep the organisation on track.
As these tasks indicate, strategic management involves the planning, directing, organising and controlling of a company's strategic decisions. If you think about the activities mentioned above, they are similar to those functions and activities mentioned in Chapter 1 as being the basic functions of management.
Note : There are as many strategic management models as there are textbooks and definitions. Do not be confused by these.
There are many techniques for analysing the internal and external environments of an organisation, but the SWOT analysis appears to be the most popular. You will have the opportunity to study these techniques in detail in a later subject.
An important point needs to be made. Note that we have used the word analysis. This means that an analysis, an assessment, is required as opposed to a description . There is a difference.
The SWOT analysis is relevant in considering both the external and the internal environment of an organisation. In Chapter 2 we discussed the external environment, identifying the elements of the external environment and why managers should be concerned with what is happening. It is from the elements of the external environment that one identifies the opportunities and threats that face an organisation.
The internal analysis considers issues such as organisational structure, the scope of operations and financial position. It also includes the organisational culture and climate and the conditions that exist within the organisation.
Activity 5.2
Do any threats and opportunities posed by the external environment in which your organisation operates come readily to mind? How can any threats be minimised and opportunities taken advantage of?
Consider this
By way of example, think about the following external environmental influence:
Thailand , Indonesia , Malaysia and the Philippines were all severely disrupted by the East Asian currency crises, and their economies will suffer the effects in the medium term. The first two countries embarked on IMF-inspired austerity programs, and Malaysia undertook its own programs of capital expenditure retrenchment. Some port investment in the Philippines has been postponed.
Key management principle
Identifying and thoroughly understanding the strategic issues a company faces is a prerequisite to effective strategy making.
4. Goal and objective setting.
The analysis of the organisation's strengths and weaknesses and the development of a mission statement are only part of the process of strategic management. The mission statement needs something to drive it. Together the goals and objectives drive the organisation towards the fulfilment of its mission.
Goals and objectives in strategic management are the targets that an organisation sets out to achieve. What is the difference between goals and objectives? This is where many writers differ as to what is a goal and what is an objective. The words are sometimes used interchangeably. Common terminologies are strategic goal and strategic objectives . We present one approach below, using the popular Blanchard (1987) SMART framework .
Goals tend to be broader and more general in nature and objectives are more specific and measurable. This is particularly important for evaluation and control purposes because it is difficult to control what you have not measured .
Some examples may assist in clarifying this:
Goal 1 : Provide shareholders with a reasonable return on investment.
Goal 2 : Offer a high standard of service and facilities.
Note that these are broad statements of what the organisation must do to realise its vision.
The following reading contains three examples of goals, following on from mission statements (the Gladstone Port Authority, the Australian Department of Foreign Affairs and the AMC). Note the mission statement for the Department of Foreign Affairs is very brief.
Reading 5.2
Compilation of various web sites and organisational missions. [6 pages]
SMART objectives
Too many managers set meaningless targets that cannot be achieved. SMART is a clever acronym developed by Blanchard et al. (1987) in their book Leadership and the One Minute Manager . The letters stand for:
S pecific: exactly what is to be achieved?
M easurable: how can it be measured; what targets will we use to make it measurable?
A chievable: what will stretch us and yet be attainable?
R elevant: will it help us achieve our goals?
T raceable: timeframe; how can we track performance?
In the maritime industry, objectives can cover areas such as profitability, market positions, innovation, productivity, physical and financial resources, public and social responsibility, manager performance, employee performance and international competitive position.
If, for example, your goal is to provide shareholders with a reasonable return on investment, your objective might be as follows:
- Achieve a 15% return on investment for all shareholders.
Note that the objective flows logically from the goal. The objective is a more s p ecific statement; and all objectives are measurable .
As another example, take the goal of offering a high standard of service and facilities. Specific objectives relating to this goal could be:
- During 1997 - 1999 complete the dredging of a new channel.
- Immediately conduct a review of the truck booking system.
- By 2002 purchase four new portainer cranes.
Your textbook presents goals on three levels: strategic goals, tactical goals and operational goals (refer Figure 6.2, page 177 and Figure 6.3, page 178 of your text).
An example from the AYS Port Authority
Assume you work for the AYS Port Authority. Part of the Port's mission is 'to manage an efficient port and encourage trade growth for the continuing benefit of the region and port users'. One of the Port's six goals to achieve this mission is ' to maximise all trade opportunities and increase port productivity '.
Here are some objectives for this goal:
- by 2004, increase total tonnage to 25 million tonnes per year.
- from 2002-2004, to increase market share against east-coast australian container ports to 20% of the total market.
- to achieve an average trade growth of at least 8% per year.
In your text
Bartol, K M; Martin, D C; Tein, M H and Matthews, G W (2001),
pages 176-196.
Therefore, goals and objectives are the 'what' you want to achieve. We will now move to the final stage of formulation, which is strategy selection. You will see that strategies are the 'how' you will achieve your goals and objectives. Figure 5.1 draws the relationship between mission., goals and objectives together.
5. Strategy selection.
Once an organisation has established its mission, the strengths and weaknesses of its internal and external environments and its goals and objectives, it can begin to organise a strategy by which it can achieve its aims.
Strategy selection involves the identification of specific actions and means - the strategies by which the organisation's goals and objectives can be achieved. Objectives tell us what is to be achieved; strategies tell us how .
The term strategy is often used loosely. For example, our strategy is to beat the competition is not a strategy but more like a goal. Entering into a joint venture, acquisition or diversifying into another business are strategies.
These activities describe how you are going to beat the competition, how you are going to achieve your goal.
The different types of strategies employed by an organisation to realise its mission can be an extremely interesting area of study. There is a wide array of strategies written about in the literature. Since we are in the business of strategic decision making, remember that your choices are only limited by your imagination.
In your text
Bartol, K M; Martin, D C; Tein, M H and Matthews, G W (2001),
pages 213-223.
|
Key questions What and where do we want to be in the future? |
Mission |
Example To contribute to the economic development of Tasmania by providing high quality and cost effective port services and facilities to all port users. |
| What must we do to be what we want to be and go where we want to go? |
Strategic goals Broad statements of |
Offer a high standard of facilities and services. Provide shareholders with a reasonable return on investment. Provide an attractive and satisfying work environment for employees. Be responsive to community needs and expectations. |
What specific things must we be able to do as a measure of our progress? |
Strategic objectives More specific statements of what |
Goal 1 By 2004, purchase two new portainer cranes. During 2001-03, complete the dredging of a new channel. Immediately conduct a review of the truck booking system to be completed by... Goal 2 Achieve a 7% return on investment for all shareholders ...etc. |
Figure 5.1 Mission , goals and objectives
Key management concept
An organisation exhibits strategic intent when it relentlessly pursues strategic objectives and concentrates its competitive actions and energies on achieving those objectives.
Levels of strategy
By now it should be clear that strategy could be developed at various levels of the organisation. There can be:
- corporate-level strategy - strategy formulated by top management to oversee the interests and operations of multi-line corporations
- business-unit strategy - strategy formulated to meet the goals of a particular business
- functional-level strategy - strategy formulated by a specific functional area in an effort to carry out business-unit strategy.
It is important that the different levels of strategies 'fit' together; that is, that each level of strategy is in harmony with the mission statement and other levels.
Consider the following scenario
Frank is the human resource manager for Wiljefferson Lines Asia-Pacific Pty Ltd. He has just arrived back at work after a two month leave of absence. The assistant director of marketing has just asked Frank his opinion regarding the announcement that the Chief Executive Officer has made regarding 'the market expansion'. Until this time Frank had been unaware of any moves by the organisation towards major expansions in any areas.
The assistant director explains to Frank that at a special meeting of the executive council the previous week it was announced that there would be a major expansion, involving a new geographical markets. It seemed that most people at the meeting fully supported the expansion and were well prepared for it.
At the meeting the financial services section expressed the financial independence of the organisation. The operations manager had done a complete costing of the changes that would be required.
The marketing division had been pushing for the idea for a considerable time so they were ready for the move. As a result of the proposed expansion the company expected employment to increase by at least 30 per cent by the following year.
This scenario is extreme, but as an example of different levels of planning it suits our purposes. Obviously, the situation poses a major problem for the human resource management section and it should have been included in their operational plans.
Consider this
What does this scenario indicate about the communication in the organisation? What does it mean for the 'fit' between corporate and operational strategies?
A guide to selecting a strategy
Key questions to consider in the selection of a strategy are outlined below.
- Is the strategy consistent with the results of the environmental assessment?
- Does it consider all of the relevant elements and stakeholders?
- Does it minimise uncertainties so that the firm is not vulnerable because of this strategy?
- Is the strategy the most effective way to meet the demands of a new opportunity?
- Does the strategy use the strengths of the organisation? Does the strategy use strengths to meet the demands of the new opportunity?
- Is the strategy consistent with the firm's stated mission, and does it accomplish strategic goals?
- Are the right people available to support the strategy? Is the organisational culture and managerial skill sufficient for the strategy to work?
- Are there sufficient resources (like capital, facilities, managerial expertise etc) to make the strategy work?
- Does the strategy offer a genuine competitive advantage? Is it based upon something, which is important to customers?
- Does the strategy offer an acceptable level of risk (relative to return) that the organisation is happy to live with?
- Is the strategy socially acceptable? Would society find the strategy to be within the norms of ethical behaviour?
- Is the strategy clear and communicable enough for all to understand?
- Is the strategy achievable enough - challenging so that people will be motivated to making it work, yet not so easy or conservative that they lose interest in it?
6. Strategy implementation
John Akers of IBM considered that:
It isn't just a plan, it is a way of communicating with each other.
This leads us into a discussion on implementing the plan. Many organisations complete strategic plans but pay 'lip-service' to their implementation. There is little point in spending resources on strategic planning and then letting the ideas sit in a box. An organisation can produce a brilliant strategy but unless they complete the process by careful implementation and control the strategy loses its effectiveness.
During the formulation of strategies you will need to be creative and conceptual in your approach. During the implementation of strategies you need to be more action-oriented; that is, now that you have decided what it is you want to happen you now have to make it happen.
There is an obvious and vital link between formulation and implementation. I like David Hurst's point of view: The formulation of strategy can develop competitive advantage only to the extent that the process gives meaning to the 'employees in the trenches.
In your text
Bartol, K M; Martin, D C; Tein, M H and Matthews, G W (2001),
pages 224-225.
The issues raised in the above reading are covered in detail as you proceed through your course. They are mentioned here to put our discussion of the strategic management process into perspective.
Formulation and implementation differ in four important ways:
Formulation forces are positioned ahead of action stress on effectiveness requires intuitive and less people involved |
Implementation forces are in action stress on efficiency requires motivation and all people involved |
The following reading focuses on assisting organisations with strategy implementation:
Reading 5.3
Onsman, Harry and Kalmus, Fred (2001, May). 'Beyond strategy'. Management Today , pages 20-24.
7. Strategy evaluation and control.
Evaluation and control involve establishing performance targets and comparing the actual results with those performance targets. Evaluation requires analysing any deviations and implementing the necessary modifications. This suggests that effective evaluation and control require an efficient monitoring system that measures progress towards set goals and produces readable, timely reports so that modifications are made.
In essence, the purpose is to closely monitor and evaluate performance to ensure that the selected strategies are working. If they are not, corrective action needs to be taken.
We cover evaluation and control in detail in Chapter 13 of this subject. Chapter 16 of the your textbook covers control in greater detail. We will use this chapter later. You may wish to glance through it now. For now, think about Blanchard's idea of SMART objectives and how you might use them to evaluate performance. Use the questions for discussion and review in your text to judge your progression in this chapter.
In your text
Bartol, K M; Martin, D C; Tein, M H and Matthews, G W (2001), pages 225-228.
Use the following table to think through the issues raised in this chapter. Then, refer to page 214, Figure 6.1 in your textbook to draw together the discussion.
Key management concept
An organisation's mission, objectives, strategy, and approach to implementation are never final; evaluating performance, monitoring changes in the surrounding environment and making adjustments are normal and necessary parts of the strategic management process
Basic strategic issues
Issue |
Core Concern |
Illustration |
Mission |
What business are we in? Who are our customers? What is out philosophy and self-images? How are we unique? |
Maximise financial return to owners vs provide customers with superior products/services
|
Goals and objectives |
What are our targets or end points? |
Social responsibility Manager performance Profitability Market share |
Strategies |
What are our markets? How do we compete - price, quality, product attributes? Do we concentrate or diversify? What are our distinctive competencies? |
Low prices with high volume or higher quality, higher price, power volume Market leader or follower Concentrate on a product line/specific market or diversify into a range of products/markets |
Monitoring and corrective action |
What do we do when performance falls short of goals? What are our contingency plans? What actions are needed to correct deviations? |
Acquire new competencies Reduce size of organisation Dispose of underperforming activities or units
|
Adapted from Vecchio, Hearz, Souther (1996). Organisational Behaviour . Australia : Harcourt Brace.
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