Stages of Strategic Management¶
Strategic management is a process that involves the formulation, implementation, and evaluation of cross-functional decisions that enable an organization to achieve its objectives. The strategic management process is divided into three key stages:
1. Strategy Formulation¶
Strategy formulation involves:
- Developing a Vision and Mission: Establishing the organization's long-term direction and purpose.
- Identifying External Opportunities and Threats: Analyzing the external environment to understand factors that could benefit or threaten the organization.
- Determining Internal Strengths and Weaknesses: Assessing the organization's internal capabilities and limitations.
- Establishing Long-Term Objectives: Defining specific results the organization aims to achieve over a longer period.
- Generating Alternative Strategies: Creating different approaches the organization could take to achieve its objectives.
- Choosing a Strategy: Selecting the most appropriate strategy that aligns with the organization's vision and mission.
Key Issues in Strategy Formulation¶
Strategic managers must make critical decisions, such as:
- Which new business to enter or which business to abandon?
- Whether to expand operations or diversify into new areas?
- Whether to enter international markets?
- Whether to merge with or form a joint venture with another company?
- How to avoid a hostile takeover?
Examples of External Opportunities and Threats¶
- Opportunities:
- Availability of capital.
- Increasing demand for green products.
- Growth in global markets.
- Threats:
- Rising interest rates.
- Intense price competition.
- Social media networks rapidly expanding.
- National and global crises like wars or economic downturns.
2. Strategy Implementation¶
Strategy implementation is the process of executing the strategies formulated. It is often referred to as the "action stage" and is considered the most challenging part of strategic management.
Key Steps in Strategy Implementation¶
- Establishing Objectives: Setting specific, actionable goals that need to be achieved to implement the strategy.
- Devising Policies: Creating guidelines, rules, and procedures to facilitate the execution of strategies.
- Motivating Employees: Ensuring that the organization's workforce is aligned with the strategic goals and motivated to achieve them.
Importance of Interpersonal Skills¶
Interpersonal skills are critical in the implementation stage, as they help in effectively managing people, fostering teamwork, and ensuring alignment with strategic objectives.
3. Strategy Evaluation¶
Strategy evaluation is the final stage of the strategic management process. It involves three fundamental activities:
- Reviewing External and Internal Factors: Continuously assessing the external and internal factors that were the basis for the current strategies to ensure they remain relevant.
- Measuring Performance: Evaluating the organization's performance against the set objectives to determine the effectiveness of the strategy.
- Taking Corrective Action: Making necessary adjustments to strategies based on performance outcomes and changes in the external or internal environment.
In large organizations, these stages occur at three hierarchical levels:
- Corporate Level: Top management focuses on the overall direction and strategy of the organization.
- Divisional or Strategic Business Unit (SBU) Level: Middle management develops strategies for specific divisions or SBUs.
- Functional Level: Functional managers ensure that departmental strategies align with the overall strategic goals of the organization.
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