Courtesy : Bachelor of Hotel Management and Catering Technology Book

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization’s managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization’s objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

Michael Porter identifies three principles underlying strategy:

• creating a “unique and valuable [market] position”
• making trade-offs by choosing “what not to do”
• creating “fit” by aligning company activities with one another to support the chosen strategy

Corporate strategy involves answering a key question from a portfolio perspective: “What business should we be in?” Business strategy involves answering the question: “How shall we compete in this business?”

Management theory and practice often make a distinction between strategic management and operational management, with operational management concerned primarily with improving efficiency and controlling costs within the boundaries set by the organization’s strategy.

Application

Strategic management processes and activities

Strategy is defined as “the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” Strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment.

Strategic management involves the related concepts of strategic planning and strategic thinking. Strategic planning is analytical in nature and refers to formalized procedures to produce the data and analyses used as inputs for strategic thinking, which synthesizes the data resulting in the strategy. Strategic planning may also refer to control mechanisms used to implement the strategy once it is determined. In other words, strategic planning happens around the strategic thinking or strategy making activity.

Strategic management is often described as involving two major processes: formulation and implementation of strategy. While described sequentially below, in practice the two processes are iterative and each provides input for the other.

Formulation

Formulation of strategy involves analyzing the environment in which the organization operates, then making a series of strategic decisions about how the organization will compete. Formulation ends with a series of goals or objectives and measures for the organization to pursue. Environmental analysis includes the:

• Remote external environment, including the political, economic, social, technological, legal and environmental landscape (PESTLE);
• Industry environment, such as the competitive behavior of rival organizations, the bargaining power of buyers/customers and suppliers, threats from new entrants to the industry, and the ability of buyers to substitute products (Porter’s 5 forces); and
• Internal environment, regarding the strengths and weaknesses of the organization’s resources (i.e., its people, processes and IT systems).

Strategic decisions are based on insight from the environmental assessment and are responses to strategic questions about how the organization will compete, such as:

• What is the organization’s business?
• Who is the target customer for the organization’s products and services?
• Where are the customers and how do they buy? What is considered “value” to the customer?
• Which businesses, products and services should be included or excluded from the portfolio of offerings?
• What is the geographic scope of the business?
• What differentiates the company from its competitors in the eyes of customers and other stakeholders?
• Which skills and capabilities should be developed within the firm?
• What are the important opportunities and risks for the organization?
• How can the firm grow, through both its base business and new business?
• How can the firm generate more value for investors?

The answers to these and many other strategic questions result in the organization’s strategy and a series of specific short-term and long-term goals or objectives and related measures.

Implementation

The second major process of strategic management is implementation, which involves decisions regarding how the organization’s resources (i.e., people, process and IT systems) will be aligned and mobilized towards the objectives. Implementation results in how the organization’s resources are structured (such as by product or service or geography), leadership arrangements, communication, incentives, and monitoring mechanisms to track progress towards objectives, among others.

Running the day-to-day operations of the business is often referred to as “operations management” or specific terms for key departments or functions, such as “logistics management” or “marketing management,” which take over once strategic management decisions are implemented.