The four basic elements that come under the purview of Strategic Management are stated as follows:
- Environmental Scanning
- Strategy Formulation
- Strategy Implementation
- Evaluation and Control
Environmental Scanning
It can be described as a detailed analysis of the internal and external environment of an organization to evaluate the chances of its survival and growth. In other words, it is a scanning of the organizational environment so that the opportunities as well as threats can be monitored for better functioning of the company.
Environmental Scanning is ongoing monitoring of the prospects and unforeseen dimensions. The emphasis is on “what could happen” and not on “what will happen.” The scanning does not give a partial view of the environment; rather, the approach is comprehensive and dynamic.
Components of Environmental Scanning
- Internal Components: Influence the performance of the organization from within (human resources, capital, technological resources).
- External Components: Affect the organization from outside (consumers, suppliers, political and legal factors, demographic conditions, etc.).
Process of Environmental Scanning
- Scanning
- Monitoring
- Forecasting
- Assessment
Techniques used: SWOT, PEST, ETOP, QUEST
Strategy Formulation
The process by which the most suitable course of action is chosen to attain organizational goals is strategy formulation. It is a process of investigation, analysis, and making appropriate decisions that serve the best interests of the organization.
Strategy formulation allows the organization to meet its goals effectively, thereby increasing market share and enhancing profits.
Steps in Strategy Formulation
- Establishing the objectives
- Analyzing the objectives both internally and externally
- Setting targets in quantitative terms
- Developing a strategic plan for sub-units and establishing relationships between targets and divisional units
- Analyzing the gap between actual and standard performance
- Choosing the best strategy to attain the best results
Levels of Strategy Formulation
- Corporate-Level Strategy: Focus on corporate advantage. Answers “What business/es should we enter in?” Main strategies include growth, expansion, retrenchment.
- Business-Level Strategy: Answers “How should you compete?” Focuses on a single business unit using tools like cost leadership and differentiation.
- Functional-Level Strategy: Framed by top-level management to support business and corporate strategies. Covers marketing, operations, finance, HRM, production, and R&D.
Strategy Implementation
The actions and strategies that have been chosen are now assimilated for the execution of the strategic plan to meet the desired goals. When a chosen strategy is brought into action to meet organizational objectives, it is known as strategy implementation.
Without stability between organizational dimensions and formulated strategies, effective implementation is difficult. Even the best strategies would fail if not properly implemented.
Strategy implementation includes execution of plans, utilization of resources, and establishing coordination between structure and culture for better performance.
Steps in Strategy Implementation
- Develop an organization with potential for effective strategy execution
- Allocate resources to essential activities
- Encourage and employ effective organizational policies
- Utilize strategic leadership effectively
- Encourage implementation of strategy-related policies
- Promote reward schemes for achieving desired results
"Both formulation and implementation are essential, but implementation is more difficult than formulation."
Strategy Formulation vs. Strategy Implementation
Evaluation and Control
The last stage in the Strategic Management Process is evaluation and control. This stage checks the effectiveness of the chosen strategy in meeting organizational goals and takes corrective measures if needed.
Strategic Evaluation Aims to
- Check effectiveness of the strategy
- Identify gaps in meeting objectives
- Provide direction to meet set goals
- Give feedback to create new policies
- Establish a reward system and ensure proper resource utilization
Process of Strategic Evaluation
- Fixing benchmarks of performance:Quantitative: Net profits, ROI, EPS, employee turnover Qualitative: Skills, risk-taking capacity
- Measuring performance: Compare standard vs. actual performance using communication systems and financial statements
- Variance evaluation: Analyze acceptable vs. unacceptable gaps
- Corrective measures: Take action for unacceptable gaps
- Techniques used: GAP Analysis, PEST, SWOT, Benchmarking
Strategic Control
After evaluation, strategic control comes into action.
"Schreyogg and Steinmann (1987): “Strategic Control is the critical evaluation of plans, activities, and results, thereby providing information for the future action.”"
Types of Strategic Control
- Premise Control: Continuous monitoring of premises set during planning.
- Strategic Surveillance: Similar to environmental scanning; monitors information systems to protect and improve strategy.
- Implementation Control: Starts with action plans; milestone reviews provide continuous monitoring.
- Strategic Alert Control: Deals with unexpected events like natural calamities, defects in products, etc.
Features of Effective Strategic Control
- Establishes targets and standards
- Monitors the system continuously
- Compares desired and actual performance
- Analyzes results and provides corrective actions
Importance of Strategic Control
- Improves product quality and standards through feedback
- Ensures efficient utilization of human resources
- Encourages innovations and product development
- Enhances work efficiency, reduces wastage, and prevents under-utilization of resources
