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Phases of Strategic Management

Strategic management has evolved through four phases: 1) basic financial planning, 2) forecast-based planning incorporating multi-year projects, 3) externally oriented strategic planning led by top management, 4) strategic management involving managers across departments. A survey found the top benefits are a clearer strategic vision, focus on priorities, and understanding of changes. Strategic management allows companies to track international trends and position themselves for long-term advantage in a global environment.

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164 views3 pages

Phases of Strategic Management

Strategic management has evolved through four phases: 1) basic financial planning, 2) forecast-based planning incorporating multi-year projects, 3) externally oriented strategic planning led by top management, 4) strategic management involving managers across departments. A survey found the top benefits are a clearer strategic vision, focus on priorities, and understanding of changes. Strategic management allows companies to track international trends and position themselves for long-term advantage in a global environment.

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Im Kitty Stephanie
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PHASES OF STRATEGIC MANAGEMENT

Phase 1—Basic financial planning: Managers initiate serious planning when they are
requested to propose the following year’s budget.

Phase 2—Forecast-based planning: As annual budgets become less useful at stimulating


long term planning, managers attempt to propose five-year plans. At this point they consider
projects that may take more than one year.

Phase 3—Externally oriented (strategic) planning: Frustrated with highly political yet
ineffectual five-year plans, top management takes control of the planning process by
initiating strategic planning.

Phase 4—Strategic management: Realizing that even the best strategic plans are worthless
without the input and commitment of lower-level managers, top management forms
planning groups of managers and key employees at many levels, from various departments
and workgroups.

BENEFITS OF STRATEGIC MANAGEMENT

A survey of nearly 50 corporations in a variety of countries and industries found the three
most highly rated benefits of strategic management to be:

1. Clearer sense of strategic vision for the firm.

2. Sharper focus on what is strategically important.

3. Improved understanding of a rapidly changing environment

A recent survey by McKinsey & Company of 800 executives found that formal strategic
planning processes improve overall satisfaction with strategy development.15 To be
effective, however, strategic management need not always be a formal process. It can
begin with a few simple questions:

1. Where is the organization now? (Not where do we hope it is!)

2. If no changes are made, where will the organization be in one year? two years? five years?
10 years? Are the answers acceptable?

3. If the answers are not acceptable, what specific actions should management undertake?
What are the risks and payoffs involved?

IMPACT OF GLOBALIZATION

The integrated internationalization of markets and corporations, has changed the way
modern corporations do business. For example, the inter-connected nature of the global
financial community meant that the mortgage lending problems of U.S. banks led to a global
financial crisis in 2008. The worldwide availability of the Internet and supply-chain logistical
improvements, such as containerized shipping, mean that companies can now locate
anywhere and work with multiple partners to serve any market. To reach the economies of
scale necessary to achieve the low costs, and thus the low prices, needed to be competitive,
companies are now thinking of a global market instead of national markets.

As more industries become global, strategic management is becoming an increasingly


important way to keep track of international developments and position a company for long-
term competitive advantage. For example, General Electric moved a major research and
development lab for its medical systems division from Japan to China in order to learn more
about developing new products for developing economies. Microsoft’s largest research
center outside Redmond, Washington, is in Beijing. According to Wilbur Chung, a Wharton
professor, “Whatever China develops is rolled out to the rest of the world. China may have a
lower GDP per-capita than developed countries, but the Chinese have a strong sense of how
products should be designed for their market.”

IMPACT OF ENVIRONMENTAL SUSTAINABILITY

Environmental sustainability refers to the use of business practices to reduce a company’s


impact upon the natural, physical environment.

The effects of climate change on industries and companies throughout the world can be
grouped into six categories of risks: regulatory, supply chain, product and technology,
litigation, reputational, and physical:

1. Regulatory Risk: Companies in much of the world are already subject to the Kyoto
Protocol, which requires the developed countries (and thus the companies operating within
them) to reduce carbon dioxide and other greenhouse gases by an average of 6% from 1990
levels by 2012.

2. Supply Chain Risk: Suppliers will be increasingly vulnerable to government regulations—


leading to higher component and energy costs as they pass along increasing carbon-related
costs to their customers.

3. Product and Technology Risk: Environmental sustainability can be a prerequisite to


profitable growth. For example, worldwide investments in sustainable energy (including
wind, solar, and water power) more than doubled to $70.9 billion from 2004 to 2006.

4. Litigation Risk: Companies that generate significant carbon emissions face the threat of
lawsuits similar to those in the tobacco, pharmaceutical, and building supplies (e.g.,
asbestos) industries.

5. Reputational Risk: A company’s impact on the environment can heavily affect its overall
reputation.

6. Physical Risk: The direct risk posed by climate change includes the physical effects of
droughts, floods, storms, and rising sea levels.

CREATING A LEARNING ORGANIZATION

Strategic flexibility demands a long-term commitment to the development and nurturing of


critical resources. It also demands that the company become a learning organization—an
organization skilled at creating, acquiring, and transferring knowledge and at modifying its
behavior to reflect new knowledge and insights. Organizational learning is a critical
component of competitiveness in a dynamic environment.

Learning organizations are skilled at four main activities:

1.Solving problems systematically

2. Experimenting with new approaches

3. Learning from their own experiences and past history as well as from the experiences of
others

4. Transferring knowledge quickly and efficiently throughout the organization

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