Strategy is the term used for integration of the organizational activities and utilization and allocation of the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vacuum and that any act taken by an organization is likely to be met by a reaction from those affected, competitors, customers, employees, suppliers or other stakeholders.
Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined as ‘A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process’.
Strategic plan is a document which is used to communicate with the organization the goals of the organization, the actions needed to achieve these goals and all of the other critical elements developed during the planning exercise. Strategic planning is a management activity that is used to set priorities, to focus on energy and resources, to strengthen operations, to ensure that employees and other stakeholders are working toward common goals, to establish agreement around intended outcomes/results, and to assess and adjust the organization’s direction in response to a changing environment. It is a disciplined effort that produces fundamental decisions and actions that shape and guide what the organization is, who it serves, what it does, and why it does it, with a focus on the future. Effective strategic planning articulates not only where the organization is going and the actions needed to make progress, but also how it will know if it is successful.
The Association for Strategic Planning (ASP), a U.S.-based, non-profit professional association has developed the following criteria for strategic planning and management.
- Uses a systems approach that starts with the end in mind.
- Incorporate change management and leadership development to effectively transform an organization to high performance.
- Provide actionable performance information to better inform decision making.
- Incorporate assessment based Inputs of the external and internal environment, and an understanding of customers and stakeholder needs and expectations.
- Include strategic initiatives to focus attention on the most important performance improvement projects.
- Offering a supporting toolkit, including terminology, concepts, steps, tools, and techniques that are flexible and scalable.
- Aligning strategy and culture, with a focus on results and the drivers of results.
- Integrating existing organization systems and aligning the organization around strategy.
- Be simple to administer, clear to understand and direct, and deliver practical benefits over the long term.
- Incorporate learning and feedback, to promote continuous long-term improvement.
Strategic management process defines the strategy of the organization. It is defined as the process by which management makes a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process.
Strategic management involves the formulation and implementation of the major goals and initiatives required to be taken up by the top management of the organization on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization operates.
Strategic management activities transform the static plan into a system that provides strategic performance feedback to decision making and enables the plan to evolve and grow as requirements and other circumstances change.
Strategic management is the comprehensive collection of ongoing activities and processes that organizations use to systematically coordinate and align resources and actions with mission, vision and strategy throughout an organization. Strategic management activities transform the static plan into a system that provides strategic performance feedback to decision making and enables the plan to evolve and grow as requirements and other circumstances change.
Strategic management provides overall direction to the organization and involves specifying the organization’s objectives, developing policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. Several models and frameworks have been developed to assist in strategic decision making in the context of complex environments and competitive dynamics. Since the strategic management is not static in nature; the models often include a feedback loop to monitor execution and inform the next round of planning. Strategic management process consists mainly of four steps (Fig. 1) namely (i) environmental scanning, (ii) strategy formulation, (iii) strategy implementation, and (iv) strategy evaluation.
Fig 1 Steps in strategic management process
Organizational environment consists of both external and internal factors. It needs to be scanned so as to determine the factors that influence the success of the organization. Environmental scanning refers to possession and utilization of information which relates to the organization’s internal and external environment. It refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization.
Analysis of both internal and external environments is an important part of the environment scanning. Internal organizational environment includes employee interaction with other employees and stakeholders, resource and process management, cost management, brand awareness, organizational structure and human resource potential etc.
Analysis of the external environment includes environment of the organization’s industry, national and international environment, socio economic environment, political environment, and regulatory environment etc.
While the analysis of internal environment will bring forward strength and weakness of the organization, the analysis of external environment will bring forth the opportunity and threat to the organization.
It is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose.
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. It basically involves following six steps not necessarily in a rigid chronological order.
- Setting of objectives – The key component of strategy formulation is to set the long-term objectives for the organization. Strategy is normally a medium for realization of these objectives. Through strategy, resources are deployed so as to achieve the objectives. While fixing the organizational objectives, it is essential that the factors influencing the selection of the objectives are analyzed. Once the objectives and the factors influencing their selection have been determined, it is easy to take strategic decisions.
- Evaluation of the environment – The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position so as to ensure that the factors important for competitive success of the organization can be discovered by identifying the strengths and weaknesses of the organization as well as its competitors. At this stage SWOT analysis is required to be done.
- Setting of quantitative targets – For the achievements of the organizational objectives, it is essential that the quantitative target values for the objectives are fixed.
- Development of plan – The plan for achievement of the targets is developed after carrying out the trend and capability analysis.
- Performance analysis – Performance analysis includes discovering and analyzing the gap between the planned and actual performance. A critical evaluation of the organizational performance helps in identifying the gaps that exists between the reality and the desired objectives.
- Decision regarding the strategy – This is the last step in the process of strategy formulation. The strategy is made based on the analysis feed back to achieve the desired objectives of the organization.
It implies making the strategy work as intended or putting the organization’s chosen strategy into action. Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and managing human resources.
Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage. Following are the important steps during strategy implementation.
- Forming policies which are essential for strategy implementation.
- Modifications and development of organizational systems and procedures for carrying out the strategy.
- Allocation of necessary resources to the activities which are essential for strategy formulation.
- Management is to show appropriate leadership and commitment for strategy implementation.
- Organization to have necessary external and internal communication channel to assist strategy implementation.
It is the final step of strategy management process. The key strategy evaluation activities include appraising of internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. The process of strategy evaluation process consists of the following four steps.
- Fixing of benchmarking performance – These are the parameters against which the organization’s performance is to be judged after the implementation of the strategy. Parameters are to be set in such a way so that quantitative measurement becomes feasible. This will ensure objective evaluation and avoid subjectivity in the evaluation.
- Measurement of performance – The performance of the organization need to be measured for the parameters fixed under benchmark parameters. Frequency of the measurement is to be decided and means for measurements and their recording need to be provided.
- Analyzing variance – The actual measured performance when compared with the benchmark performance may have variances which need to be analyzed. The performance within the tolerance limits indicates the successful implementation of strategy. A positive deviation indicates a better performance while a negative deviation is an issue of concern.
- Taking corrective action – Strategy formulation should have provision of corrective actions to overcome the effect of negative deviation. These corrective actions are part of the strategic management process.·