Chapter 1 “THE NATURE OF STRATEGIC MANAGEMENT”

The notion of strategic management is to achieve and maintain competitive advantage. Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross- functional decisions that enable an organization to achieve its objectives. It focuses on integrating management, marketing, finance/ accounting, production/operations, research and development, and information systems to achieve organizational success.

The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long- range planning, in contrast, tries to optimize for tomorrow the trends of today. A strategic plan is in essence a company’s game plan, a company must have a good strategic plan to compete successfully.

The strategic management process consists of three stages; strategy formulation, strategy implementation, and strategy evaluation. Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. The first stage strategy formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify.

The second stage strategy implementation (often called the action stage) requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. It includes developing an organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance. This is often considered to be the most difficult stage in strategic management. This stage answers questions like what must we do to implement our part of the organization's strategy and how best can we get the job done?

The third stage strategy evaluation is the final stage, managers need to know when particular strategies are not working well. They have to review external and internal factors that are the bases for current strategies, measure performance, and take corrective actions.

Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as anything that a firm does especially well compared to rival firms. Strategists are the individuals who are most responsible for the success or failure of an organization.

Vision statements answer the question what do we want to become? and Mission statements are enduring statements of purpose that distinguish one business from other similar firms. It addresses the What is our business?

External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological and competitive trends and events that could significantly benefit or harm an organization in the future. Long term objectives for a company are taken into account for more than one year and annual objective are short- term milestones that organizations must achieve in the long term.

Policies are the guides, rules and procedures to support efforts to achieve stated objectives; usually, they are stated in terms of management, marketing, production, finance, and research activities. Policies are really important in strategy implementation, they outline an organization’s expectations of its employees and managers.

The strategic Management Model represents a clear and practical approach for formulating, implementing and evaluating strategies. This model is dynamic and continuous, the activities should be performed not only at the end of the year, actually, the process never really ends. Companies conduct formal meetings to discuss and update some variables of the firm such as the mission, vision, objectives, strategies, strengths and weaknesses; these meetings are better known as retreats.

There are three main steps in a strategic management model: the strategy formulation, the implementation of that strategy and the evaluation of it. The process must be a self reflective that involve managers as well as employees, building a corporate culture. Both parties need to be part of the learning process, open to new ideas, new information and new viewpoints: be open mindedness. Typically the application of this model is more formal in larger and well established organizations; but not only big corporation can implemented, also small firms and governmental organizations, this is mainly because the strategic management model is becoming more widely around businesses.

Application of the strategic management model brings multiple benefits, the principal one has been to help organizations formulate better strategies through the use of more systematic, logical and rational approach to strategic choice. A really important factor in the process is communication, achieve the understanding of and the commitment from employees as well as managers. When both of them understand what is happening, they feel involved in the firm, creating a better environment: managers and employees become more innovative and creative and the process empower them. This are not the only benefits, in the financial sector there are notable improvements in sales, profitability and productivity when a company implements this process. Companies make more informed decisions with good anticipation of short and long consequences.

But, if there are many benefits, why some companies do not implement it? Well, some of the reasons are simple: there is a lack of knowledge or experience in strategic plans. Business people have the idea that a strategic management plan is a waste of time and money, and they do not want to put effort to formulate it. Some other reasons include, overconfidence, previous bad experience with it, self interest and suspicion.
Each firm has its strategy, even though some of them do not really know where they are going; the strategic management process represent a logical, systematic and objective plan to achieve future decisions of a company. Organizations must adapt to changes and be constant to improve in order to be successful.