Strategic Management Concepts and Core Components
Understanding Strategic Management
Strategic management is the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives.
Dimensions of Strategic Management
1. Top-Management Decisions
- Strategic decisions overarch several areas of a firm’s operations.
- Usually, only top management has the perspective needed to understand their broad implications.
- Only top managers have the power to authorize necessary resource allocations.
2. Large Amounts of Firm’s Resources
- They involve substantial allocations of people, physical assets, and money.
- Strategic decisions commit the firm to actions over an extended period.
- In highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm.
3. Affect Firm’s Long-Term Prosperity
- Strategic decisions commit the firm for a long time, typically five years; however, the impact lasts much longer.
- Once a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategy.
- Firms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.
4. Future-Oriented
- They are based on what managers forecast, rather than what they know.
- Emphasis is on the development of solid projections that will enable a firm to seek the most promising strategic options.
- A firm will succeed only if it takes a proactive (anticipatory) stance toward change.
5. Multifunctional or Multibusiness Consequences
- Strategic decisions have complex implications for most areas of the firm.
- Decisions about customer mix, competitive emphasis, or organizational structure involve a number of the firm’s Strategic Business Units (SBUs), divisions, or program units.
6. External Environment
- All businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their control.
- Successful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do.
Benefits and Importance of Strategic Management
Managers at all levels interact in planning and implementing strategy, similar to participative decision-making. Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones. Promoting positive behavioral consequences enables the achievement of financial goals.
Company Mission and Statement Components
Company mission is a broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms. Components include:
- Customer
- Product & Services
- Markets
- Technology
- Philosophy
- Self-Concept
- Concern for Public Image & Employees
Agency Theory: Problems and Solutions
Agency theory is a set of ideas on organizational control based on the belief that the separation of ownership from management creates the potential for the wishes of owners to be ignored.
Problems in Agency Theory
- Executives pursue growth in company size rather than earnings.
- Executives attempt to diversify their corporate risk.
- Executives avoid healthy risk.
- Managers act to optimize their personal payoffs.
- Executives protect their status.
Solutions to Agency Theory Problems
- Owners pay executives a premium for their service to increase loyalty.
- Executives receive back-loaded compensation.
- Creating teams of executives across different units of a corporation can help to focus performance measures on organizational rather than personal goals.