Strategic management is a concept and a set of analytical methods that contribute to finding answers to the above questions. In other words, strategic management (SM) is a set of management decisions and actions that determine the long-term performance of a company.
Analysis of the external environment allows us to determine the position, that is, the target audiences (consumers) for whom the goods (services) offered by the company are of interest. At the stage of strategic choice, the organization determines the type of planned strategy and methods of its implementation. The most important stage is the implementation (implementation) of the strategy. Here it is necessary to implement change programs (for example, personnel training programs, staff motivation) in order to achieve strategic goals. In addition, monitoring systems are important – monitoring the dynamics of significant indicators.
Strategy is a detailed plan that shows how an organization will achieve its mission and goals. Strategy is always a series of decisions, actions and events, and not a one-time decision, action, event.
There are also other definitions of what strategy is. Strategy is the objectives, policies and plans that, taken together, define the nature of an enterprise and its approach to survival and victory in the competition. Strategy is a proposed scenario for the development of an organization in an unstable socio-economic environment. In military science, strategy deals with the movement of troops and resources into positions that will provide superiority during combat. That is, strategy is what happens before the battle begins. The rest is tactics.
Strategy can be considered simultaneously as a Plan (guideline, direction of development), as a principle of Behavior (model of behavior), as a Position (the place of certain goods or services in the market), as a Perspective (the main method of action of the organization), as a Technique (a deft maneuver undertaken with the goal is to “beat”, outwit a competitor). For example, Chinese and Swiss manufacturers of battery-powered wristwatches share the same perspective, but occupy different market positions and therefore adopt different behavior patterns.
Andy Grove, a former director of Intel, introduced the concept of a strategic turning point at which a business must undergo radical changes due to new technologies, changing values, consumer preferences, a sharp change in the rules that govern the organization, and other reasons.
The purpose of the strategy is the organization’s advantages in the market. The core of any strategy is the creation of new opportunities: new solutions for the market, new consumers, etc. Opportunities cannot be realized without exploiting or making changes, both in the external environment and in the organization itself. For example, the transition from the “Zunovsky” model of a university graduate to a competency-based model (with an emphasis on the formation of important competencies that combine, in addition to knowledge and skills, also personal qualities that are significant for professional activity) involves the modernization, first of all, of forms and methods of teaching, and the development by teachers of blended learning technologies with an emphasis on independent work of students.
The principle of core competence, which allows you to see not the products of the organization, but the competencies at its disposal. Core competencies reflect knowledge and skills that cannot be completely imitated and therefore form the basis for an organization’s sustainable competitive advantage. For example, the key competence of a university is to develop and provide educational services that are guaranteed to provide a particular graduate with values that are significant to him: 1) success in his activities (professional competencies); 2) moral values; 3) increased independence; 4) the possibility of better employment; 5) higher social status, etc.
The principle of basic functionality. For example, the functionality of a blackboard is that it facilitates the transfer of information to a group of people (students) in real time. The university “sells” not educational programs, educational materials, but, first of all, the success of graduates in the labor markets, the authority the university has gained with employers. The principle of basic functionality implies that the successful organization is the one whose product (service) better corresponds to the basic functionality – the expectations of consumers.
Conclusion: any organization is faced with the need to look for ways to gain competitive advantages in the most effective build-up and use of key competencies (opportunities), and not in goods (services), which are just a projection of key competencies.
Production capabilities include managing the volume and mix of output, production costs, equipment and technology (emphasis on cost leadership and improving internal processes).
Market promotion is a set of activities aimed at ensuring the transfer of created value to the consumer. Includes both direct sales organization and brand promotion, market research (emphasis on differentiation).
Relations with the business environment are all interactions of a company with its suppliers, counterparties, financial agents, government bodies and other influence groups.
Product management implies the ability to improve and expand the basic functionality of existing products, create new products and new markets, and shape the “innovation trajectory” of a product. For the university, one of the new opportunities is, for example, the implementation of professional retraining programs for students and listeners for additional qualifications for higher education.
Management of the internal organizational structure is aimed at creating opportunities to influence the composition, number, evaluation of personnel, and to organize interaction between the main divisions within the organization.
The general criterion for choosing a strategy for an organization can be formulated as follows: “The optimal competitive strategy for an organization (institution) will be one that leads to an expansion of the number of opportunities (the more options we have for action, the more stable our position).”
It is proposed to use the principle of expanding the “space of possibilities” as a criterion for choosing the optimal competitive strategy. The optimal strategy will be one whose implementation leads to an increase in the number of options for further actions and strengthens the organization’s position in a competitive market. For example, measures such as licensing training in popular areas, introducing a quality management system for services provided, using “blended learning” technologies, developing professional standards and organizing procedures for independent certification and training of specialists (including graduates) on the basis of the university university).
Thus, mastering “blended learning” technologies increases the volume of services, allows optimizing training costs, opens new regional markets and improves the quality of educational services based on systematic monitoring of students’ independent work. New opportunities reflect, first of all, the competencies of teachers and researchers (level of motivation, knowledge, skills, interaction skills), which “crystallize” at a higher level into the key competencies of the university.
Work experience and understanding of the external environment allow the leader to create a vision, i.e. development scenario of the company over several years.
The vision serves as the basis for making strategic decisions and developing plans. A vision is an entrepreneur’s informal, personal concept that allows for flexibility and freedom in decision-making.
An example is Amazon.com. The vision of the company’s founder, Jeff Bezos, who envisioned the active use of the Internet in the sale of books and other goods, was realized in the company’s activities. Amazon.com recently announced the release of a smartphone that has a low price (more than 2 times lower than analogues offered by Apple) and is focused on the resources and databases of this company.
The advantage of the entrepreneurial model is a clear model for the growth of the organization. The disadvantage is too much dependence on the personal qualities of the leader.
In an organization, there is often “bargaining” between stakeholders promoting their goals. The organization moves forward in implementing the strategy in small steps.
Let’s look at a hypothetical example. Let’s say that, unlike Amazon.com, another book company specialized in delivering prestigious books to your door. However, with the rise of e-commerce, this marketing approach no longer worked. Finding itself on the verge of collapse, the company began producing electronic versions of books and relied on television advertising. Things got better.
Within the trial-and-error model (logical gradualism model), strategy is viewed as an evolutionary process that requires movement both forward and backward. Strategy development is usually an interactive process during which an organization examines its environment, predicts the future, conducts experiments, and learns new things. The mission and goals are set, but the strategy emerges through discussion and experimentation. The strategy can be implemented either spontaneously or according to plan. During the implementation process, the strategy is reformulated and modified under the influence of changes in the external environment. Strategy is in the making. The strategist must handle his creation carefully, he must always be ready to reconsider the chosen direction of movement.
This approach is useful when the environment is changing quickly and it is important to obtain the necessary resources and information before moving forward.
Elements of all approaches can be found in company practices today.
The planning model has been seriously criticized for its apparent technocratic approach, which opponents say ignores the human assets of the organization. It is clear, however, that large (multinational) corporations would not be able to develop and implement their strategies based on the entrepreneurial model.
In real life, companies develop strategies using various combinations of the four models and placing emphasis depending on the market, industry, specifics of the company’s activities, its size, organizational culture, etc.
Environmental scanning (environmental scanning – monitoring the external and internal environment, assessing the data obtained, informing employees and other interested groups about the situation. The external environment (in the context of strategy formation) consists of opportunities and threats that are outside the organization. Managers cannot control The internal environment includes the strengths and weaknesses that are found in the organization itself (culture, personnel, resources, structure, etc.) Managers can control them.
Strategy formulation is the development of long-term plans for effectively managing opportunities and threats arising in the external environment, taking into account the company’s strengths and weaknesses.
Mission is the purpose, reason for the existence of an organization. The mission statement communicates what the company offers to society.
Mission statement is a statement of the main unique purpose of the company, which distinguishes it from other companies of the same type. It is a statement of what the company represents now and what it wants to achieve in the future.
Values are the eternal principles that guide an organization. They reflect deeply held beliefs held by the organization’s employees and which are manifested in their daily behavior. The organization’s values demonstrate what behavior is expected of staff. For example, the values of an organization can be team spirit, sincerity, respect for other people, trust, initiative, and the desire for innovation.
Vision answers the question “what?”, i.e. represents a picture of reality (dream) that the organization seeks to create. The vision is related to the ambitions of the leader and employees of the organization – the will and determination to make the dream a reality.
The problem with many companies that fail to “launch the vision” is not that they failed to imagine the contours of the future, but that they failed to believe in it. Life shows that the formation and acceptance of a vision of the future is impossible without breaking existing stereotypes, without cultivating faith in the “impossible.” Let’s take as an example Henry Ford’s vision-dream, dating back to the beginning of the last century: “I will create a car for the general public. The price will be so low that purchasing it will not be a problem for a person with a decent salary – he will be able to enjoy outdoor recreation with his family. Horses will disappear from the highways, and the car will be perceived as the norm.”
For better memorability, organizations isolate the most significant or catchy idea from the vision statement and present it in the form of a motto or slogan. Here are some examples: “Beat Adidas” (Nike, 1960s); “Becoming the Harvard of the West Coast” (Stanford University, 1940s); “In 20 years, Soviet people will live under communism” (XXII Congress of the Communist Party of the Soviet Union, 1961).
A vision statement is a verbal picture of what the organization wants to become in the future – in 5, 10, 15 or 20 years. Unlike a mission, a vision statement, taking people into a new and wonderful future, is specific, describes a picture of the desired state of the organization, and contributes to the formulation of the organization’s goals.
Goals (objectives) are the final results of planned activities. Show what should be achieved and by when. Whenever possible, goals should be presented numerically. Achieving goals must lead to the fulfillment of the company’s mission. Example: “From 2012 to 2016, double sales volume, increase net income every year by at least 20%.”
A goal is an open-ended statement about what the organization wants to achieve, but without quantifying the results and without setting a time frame for completion. The areas along which goals and objectives are often set in business organizations are: profitability (net profit); productivity (costs); business growth (increase in assets, sales); shareholder welfare, reputation; caring for employees; contribution to society (taxes, charity, goods, services); market leadership; technological leadership (innovation); bankruptcy prevention; personal needs of managers, etc.
Policy is the rules and recommendations adopted in an organization for making decisions in the area of strategy formulation and its implementation. The company declares its policy that all employees make decisions based on the company’s mission, goals, and strategy. For example, at ZM, researchers must spend 15% of their time on work unrelated to core projects (as part of the new product development strategy). Intel welcomes cannibalism in relation to its own product line, namely, a decrease in sales of its own products due to the offer of its own more advanced products. General Electric has a rule that the company must be No. 1 or No. 2 in any business in which it competes (be number one in market capitalization). Divisions that do not achieve leadership in their market segments are liquidated.
Strategy implementation is the process by which strategy and policy are put into practice. Programs, budgets, processes are used. Changes in culture, structures, and management systems may be envisaged. Sometimes strategy implementation is called operational planning because day-to-day decisions about resource allocation must be made.
Program – a statement of the activities or steps that must be taken to carry out a particular plan. Thanks to the program, the strategy is focused on actions: changes in structure, internal culture, the beginning of new research.
A budget is a statement of a company’s programs expressed in monetary units. Budgets detail the costs of each program. For example, many companies set a certain threshold return on their investments, expressed as a percentage. Managers accept a new program if its profitability is not below the established threshold.
Processes are sequential steps that describe in detail how a specific job or task should be performed. For example, the American retailer Note Depot, which produces and sells household goods, has experienced a decline in sales. The reason is the inconvenience that customers face due to the fact that the aisles are filled with goods, there are long lines at the cash registers, and there are few sellers in the hall. It was decided to replenish shelves at night, when stores are closed. After this change in processes, sales went up.
Evaluation and control is a process by which the company’s activities and its indicators are monitored. As a result, bottlenecks are identified and re-planning is encouraged based on the knowledge gained.
Efficiency (performance) is the final result of execution, an indicator of what was done. SM is effective if it allows you to improve the overall performance of the company (increase profits, return on investment). It is necessary to organize the collection of clear and undistorted operational information from the lower levels of the hierarchy. Guided by indicators (for example, market share dynamics), managers can adjust the strategy.
The feedback process is a process through which information received at each stage of strategy formation and implementation and from each participant can be used to correct actions at all previous stages of the process. When an organization formulates or implements a strategy, it often has to go back and reconsider decisions made earlier.