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What is Strategic Management?

by D. Power

Strategic management is an ongoing process of analysis, planning, and action that attempts to keep a firm aligned with its environment while capitalizing on organizational strengths and environmental opportunities and minimizing or avoiding organizational weaknesses and external threats. Strategic management is also a future-oriented, proactive management system. Managers who use strategic management skills are seeking a competitive advantage for their firms and long-run business success.

A strategy is a pattern identified in a series of decisions or actions. An intended strategy is planned by decision makers and an emergent or realized strategy is a product of any planned and unplanned actions. According to Kenneth Andrews, a professor at the Harvard Business School, a corporate strategy is a broad term encompassing the pattern of company purposes and goals, and the major policies and actions for achieving them. Together they define the business or businesses the company is to be involved with and the kind of company it is to become. A written statement of a firm's strategic direction should communicate both a company's mission or missions and its primary goals. The written strategy statement should also include the company's major direction or thrust in products, markets, research, and production methods. A more specific supporting strategic plan should indicate the major actions, resource allocations, and other changes that will occur during the planning horizon -- usually five years.

Strategy content. Much of the research and discussion related to strategic management emphasizes the general or generic content of strategies. Michael Porter, a Harvard Business School professor, has identified three generic business strategies that may lead to competitive success. His first generic strategy is pursuit of overall cost leadership for the entire product/service market. Firms such as Microsoft and McDonalds are well-known for such a strategy. Various actions such as increasing production efficiencies, underpricing competitors, and cutting costs are directly related to the successful pursuit of this strategy. Porter's second strategy is differentiation of products so that the customers see them as unique or very distinctive. General Motors takes this approach in the automotive industry. Distinctive brands, a heavy investment in product innovation, and memorable marketing campaigns are linked directly to this general strategy. The third strategy involves focusing on only a narrow segment of a larger market, emphasizing either overall cost leadership or differentiation to achieve the goals that top managers set for the organization.

According to Porter, the major and supporting strategic plans would first identify a company's overall strategy and then describe specifics, that is, how the company plans to pursue corporate and business-level strategies.

References

Andrews, K.R., The Concept of Corporate Strategy (rev. ed.). Homewood, Ill.: Richard D. Irwin, Inc., 1980.
Porter, M. E., Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press, 1980.



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