What is the process of conducting research and gathering and assimilating external information?

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20 Questions | Total Attempts: 23297

• Which of these requires a firm to establish annual objectives, devise policies, and allocate resources?

• Anything that a firm does especially well compared to rival firms is referred to as:

• __________ are the individuals who are most responsible for the success or failure of an organization.

• A disadvantage of international operations is:

  • Competitors in foreign markets may not exist.

  • Language, culture, and value systems differ among countries, causing communication barriers and problems managing people.

  • Economies of scale can be achieved from operation in global rather than solely domestic markets.

  • Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor.

• The problem of limited resources within a firm makes ______________ particularly important as the firm decides how to allocate its resources.

• All of these are pitfalls an organization should avoid in strategic planning except:

  • Using strategic planning to gain control over decisions and resources.

  • Failing to involve key employees in all phases of planning.

  • Hastily moving from mission development to strategy formulation.

  • Using plans as a standard for measuring performance.

• The process of conducting research and gathering and assimilating external information is called:

• The term strategic planning refers only to strategy formulation.

• The action stage of strategic management is called strategy formulation.

• ________ is the process by which a firm manages the formulation and implementation of its strategy.

• The two most critical questions that __________ strategy must address are how a company will achieve its objectives today, when other firms may be competing to satisfy the same customer's needs and how the firm plans to compete in the future.

• Which of the following is not one of the three fundamental questions addressed by the corporate strategy?

  • In what business will we compete?

  • How can we, as a corporate parent, add value to our various lines of business?

  • How will diversification or our entry into a new industry help us to compete in our other industries?

  • How can we best position our operations to compete against present and future rivals within a particular business?

• Which of the following statements regarding strategy formulation and strategy implementation is the most accurate?

  • Neither strategy formulation nor strategy implementation can succeed without the other.

  • Strategy formulation is more important than strategy implementation.

  • Strategy implementation is more important than strategy formulation.

  • Neither strategy formulation nor strategy implantation can have a significant impact on firm performance.

• All of the following are elements of the strategy diamond except

• • Within the strategy diamond ______ refer(s) to decisions about the areas in which a firm will be active, including its products, services, distribution channels, market segments, geographic areas, technologies, and even stages of the value creation process

• The five elements of the strategy diamond are technologies, vehicles, differentiators, staging, and economic logic.

• Which one is not a part of strategy formulation?

• Which is not a part of strategy implementation?

  • Entrepreneurship & Innovation

• Which is not a part of the international strategy lifecycle?

  • Product Demand Develops and Firm Exports Products

  • Firm Introduces Innovation in Domestic Market

  • Production Becomes Standardized and is Relocated to Low-Cost Countries

• The term _________ is used to refer to strategy formulation, implementation, and evaluation, with _________referring only to strategy formulation.

  • Strategic planning; strategic management

  • Strategic management; strategic planning

  • Management cycle; brainstorming

• Organization
• Project Management
• Risk Management

Strategic management is defined as the art and science of formulating, implementing, and evaluating decisions that enable an organization to achieve its objectives and determine its long-term performance.

It includes external environment scanning, internal organization assessment, strategy formulation, strategy implementation, and strategy evaluation and control.

The study of strategic management, therefore, emphasizes the monitoring and evaluating of opportunities and threats in the external environment in alignment with strengths and weaknesses of an organization.

The term strategic management is used synonymously with strategic planning.

Strategic planning is often used in the business world, while strategic management is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation.

A strategic plan is, in essence, a company’s game plan. A company must have a good strategic plan to compete successfully. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals a commitment to specific markets, policies, procedures, and operations.

Strategic Management Benefits

Benefit 1: Improvement in Sales and Profitability

In general, organizations using strategic management concepts are more profitable and successful than those that do not. 

Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. 

High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industry.

High-performing firms also seem to make more informed decisions with good anticipation of both short- and long-term consequences. In contrast, firms that perform poorly often engage in activities that are shortsighted and do not reflect good forecasting of future conditions.

Small-sized and medium-sized businesses may plan informally and irregularly. Still, the greater the level of planning, the greater the level of financial performance, especially when measured in terms of sales increases.

Large or divisional corporations may have strategic planning that is complex and time-consuming. It often takes a year for a large company to move from situation assessment to a final decision agreement. Because of the relatively large number of people affected by a strategic decision in a large firm, a formalized and more sophisticated system is needed to ensure that strategic planning leads to successful performance. Otherwise, management becomes isolated and loses sight of the corporate mission and objectives.

Benefit 2: Better Long-Term Performance

The principal benefit of strategic management has always been to help organizations formulate better performance, especially long-term performance, using a more systematic, logical, and rational approach to strategic choice. 

Many organizations across the globe can manage short-term high performance, but only a few can actually sustain it over a long period of time. To be successful in the long run, companies must not only be able to execute current activities to satisfy existing markets, but they must also understand and adapt those activities to satisfy new and changing markets.

Strategic management is to emphasize this need for sustainable long-term performance.

In general, organizations that engage in strategic management outperform those that do not. An alignment between the organizational environment, its strategy, structure, and processes have a positive correlation on the long-term performance of the company.

Benefit 3: Facilitate Strategic Thinking, Understanding and Commitment

Formal strategic planning processes improve overall satisfaction with strategic development. 

To be effective, however, strategic management needs not always be a formal process. The actual process, rather than the decision or document, is the more important contribution of strategic management. 

Communication is a key to successful strategic management.

Understanding is arguably the most important benefit of strategic management. When managers and employees understand what the organization is doing and why, they often feel they are a part of the firm and become committed to assisting it. Managers and employees become surprisingly creative and innovative when they understand and support the firm’s mission, objectives, and strategies. 

Thus, the way strategic management is carried out is thus exceptionally important. A major aim of the process is to achieve the understanding of and commitment from all managers and employees. Through involvement in the process as in dialogue and participation, managers and employees become committed to supporting the organization.

The real value of modern strategic management and planning is more in the development of strategic thinking and organizational learning, understanding, and commitment, which arguably provides more long-term results than any written strategic plan.

Benefit 4: People Empowerment

Another benefit of strategic management is the opportunity that the process provides to empower individuals.

Empowerment is the act of strengthening employees’ sense of effectiveness by encouraging them to participate in decision making and to exercise initiative and imagination and rewarding them for doing so.

Firms that have nurtured their managers and employees, shared organizational objectives with them, empowered them to help improve the product or service, and recognized their contributions can turn to them for help in a pinch because of this interaction.

More and more organizations are decentralizing the strategic management process, recognizing that planning must involve lower-level managers and employees. The notion of centralized staff planning is being replaced in organizations by decentralized line-manager planning. The process is learning, helping, educating, and supporting activity, not merely a paper-shuffling activity among top executives. 

Strategic management dialogue is more important than a nicely bound strategic management document. Through involvement in the process, line managers become owners of the strategy. Ownership of strategies by the people who have to execute them is a key to success.

Basic Model of Strategic Management

Strategic management process can be applied using a specific model. 

The model of strategic management consists of 4 basic elements: (1) Environmental scanning, (2) Strategy formulation, (3) Strategy implementation, and (4) Strategy evaluation and control.

A change in any one of the major components in the model can necessitate a change in any or all of the other components. Environment scanning, strategy formulation, implementation, and evaluation activities should be performed on a continual basis, not just at the end of the year or semiannually.

Environmental scanning, strategy formulation, implementation, and evaluation and control activities occur at three hierarchical levels in the organization: corporate, divisional or strategic business unit, and functional. By fostering communication and interaction among people across hierarchical levels, strategic management helps a firm function as a competitive team. Most small businesses do not have divisions or strategic business units. Nevertheless, all managers and employees at these levels should be actively involved in strategic management activities.

These 4 steps build the foundation of a planning model describing what an organization, in general, should do in terms of building its own strategic management process. As environment variables fluctuate, organizations that put more effort into analyzing and anticipating the changing situation in which they are operating will outperform those that do not.

Step 1: Environment Scanning

This is the monitoring and evaluating information of the external and internal environment of an organization. The purpose is to identify strategic factors, for that these elements will play a central role in determining what the company will do in the future. 

The most common way to conduct environmental scanning for strategic management is to do a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats that are the strategic factors for a specific organization. 

The external environment consists of Opportunities and Threats that are outside the organization and typically not within the short-run control of top management. These variables form the context within which the organization exists. They may be general forces in society or specific factors that operate within the industry of the organization. 

The internal environment consists of Strengths and Weaknesses that are within the organization itself and are not usually within short-run control of top management either. These variables form the context within which actual work of the organization can be done. Key strengths make up a set of core competencies that the organization can use to gain a competitive advantage.

Internal Strengths and Weaknesses refer to an organization’s controllable activities that are performed especially well or poorly. They arise in the management, marketing, finance/accounting, production/operations, research and development, and management information systems activities of a business. 

Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic management activity. Organizations strive to pursue strategies that capitalize on internal strengths and eliminate internal weaknesses.

Internal strategic factors can be determined in several ways, including computing ratios or measuring performance. Various types of surveys also can be developed and administered to examine internal factors such as employee morale, production efficiency, advertising effectiveness, and customer loyalty.

External Opportunities and Threats refer to Political, Economic, Sociocultural, Technological, Ecological, and Legal trends that could significantly benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a single organization. These types of changes can create a different type of consumer and consequently a need for different types of products, services, and strategies.

A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and to avoid or reduce the impact of external threats. The process of conducting research and gathering and assimilating external information is called environmental scanning. Lobbying is one activity that some organizations utilize to influence external opportunities and threats.

Step 2: Strategy Formulation

This is the actual development of long-run plans to manage the environmental opportunities and threats, in light of the organization strengths and weaknesses. This activity includes defining the organization mission, specifying objectives, developing strategies, and setting policy guidelines.

Strategy formulation includes developing a vision and mission, establishing long-term objectives, generating alternative strategies, and choosing strategies to pursue.

Because no organization has unlimited resources, management must decide which alternative strategies will benefit the firm most. Strategy formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period.

Step 3: Strategy Implementation

This is the process to put strategies and policies into action through the development of programs, budgets, and procedures. The process may involve changes within the organization culture, structure, and/or management system.

Strategy implementation is the part of strategic management that is usually referred to as operational planning and involves daily decisions in allocating and maximizing resource allocation.

Programs are statements of internal activities needed to accomplish a plan. It may involve restructuring the organization, changing the company internal culture, or beginning a new research effort.

Budgets are statements of programs in terms of dollar investment. A budget lists the detailed cost of each program. It is to ensure that any new program will be thoroughly evaluated to significantly add profits to the organization and values to shareholders.

Procedures are sequential techniques that describe how a particular task is to be done.

Step 4: Strategy Evaluation and Control

This is the process in which organization activities and performance results are monitored. Actual performance can then be compared with desired performance. Management needs to know when strategies are or are not working well.

Management at all levels uses the resulting information to take corrective actions and resolve problems.

The evaluation and control process can pinpoint weaknesses of previous elements of strategic management, and thus reinitiate the entire process again. Based on performance results, management can make adjustments in its strategy formulation, strategy implementation, or both.

Maturity Phase in Strategic Management

Initially, strategic management is used by large corporations only. Nowadays, however, facing increasing risks of error, costly mistakes, and economic ruin are causing professionals in all organizations to take strategic management much more seriously in order to maintain their competitive advantages in today’s increasingly volatile environment.

An organization generally matures through several phases of strategic management:

Phase 1: Basic Financial Planning

Managers try to collect as many ideas as possible for the proposed budget. Projects are proposed on the basis of very little analysis, with most information coming from within the organization. Salesforce may provide some additional information about the external environment, but in most cases is insufficient. The process of basic financial planning is time-consuming and usually held once a year.

Phase 2: Forecast-Based Planning

Managers attempt to propose five-year plans. Usually, at this point, the proposal consists of projects that span more than one year. Environmental data is collected on an ad-hoc basis and extrapolated five years into the future. The process is usually involved office politics as managers try to compete for larger shares of funds. The time horizon is usually three to five years.

Phase 3: Externally Oriented Planning

Top management takes control of the planning process by initiating strategic planning. Lower-level managers no longer participate in such initiatives, instead, planning activities are now proceeded by planning staff. These people are in charge of specific tasks of developing strategic plans for the organization. Consultants often provide sophisticated techniques and tools that planning staff can use to gather information and forecast future trends. Upper-level managers meet once a year to evaluate and update this current strategic plan. 

This top-down approach emphasizes formal strategy formulation and leaves implementation issues to lower management levels. The company is seeking to increase its responsiveness to changing markets and competition by thinking strategically.

Phase 4: Strategic Management

Top management realizes that the best strategic plans are still worthless without the inputs and commitment of lower-level managers. They form planning groups of managers and key employees at many levels, from various departments and workgroups. These people will collectively develop and integrate a series of strategic plans aimed at achieving the objectives of the organization as a whole.

These strategic plans detail implementation, evaluation, and control issues. The sophisticated five-year strategic plan is now replaced with strategic thinking and commitment at all levels of the organization throughout the year. Consultants are available to guide group strategy discussions. Even though top management may still initiate the strategic planning process, the resulted strategies may be delivered from anywhere within the organization. Planning is interactive and people at all levels are now involved.

Challenges in Strategic Management

There are 3 challenging decisions that face all management today, regarding strategic management.

They are: (1) deciding whether the process should be more an art or a science, (2) deciding whether strategies should be visible or hidden from stakeholders, and (3) deciding whether the process should be more top-down or bottom-up in their firm.

Challenge 1: Strategic Management as an Art or a Science

The answer to the art versus science question is one that management must decide for themselves. However, strategic management can be viewed more as a science than an art.

This perspective contends that firms need to systematically assess their external and internal environments, conduct research, carefully evaluate the pros and cons of various alternatives, perform analyses, and then decide upon a particular course of action. 

There is less room for error in strategic planning. The idea of deciding on strategies for any firm without thorough research and analysis is unwise. Certainly, in smaller firms, there can be more informality in the process compared to larger firms, but even for smaller firms, a wealth of competitive information is available on the Internet and elsewhere and should be collected, assimilated, and evaluated before deciding on a course of action upon which survival of the firm may hinge. 

The livelihood of countless employees and shareholders may hinge on the effectiveness of strategies selected. Too much is at stake to be less than thorough in formulating strategies. It is not wise for a firm to rely too heavily on gut feeling and opinion instead of research data, competitive intelligence, and analysis in formulating strategies.

Challenge 2: Exposure of Strategic Management to Stakeholders

An interesting aspect of any competitive analysis discussion is whether strategies themselves should be secret or open within firms.

For a business organization, secrecy may not be best. Keeping strategies secret from employees and stakeholders at large could severely inhibit employee and stakeholder communication, understanding, and commitment and also forgo valuable input that these persons could have regarding the formulation and/or implementation of that strategy.

Thus management in a particular firm must decide for themselves whether the risk of rival firms easily knowing and exploiting a firm’s strategies is worth the benefit of improved employee and stakeholder motivation and input.

There are certainly good reasons to keep the strategy process and strategies themselves visible and open rather than hidden and secret. There are also good reasons to keep strategies hidden from all but top-level executives. Management must decide for themselves what is best for their firms.

Most executives agree that some strategic information should remain confidential to top managers and that steps should be taken to ensure that such information is not disseminated beyond the inner circle.

There are several reasons to be completely open with the strategy process and resultant decisions.

They are: (1) Managers, employees, and other stakeholders can readily contribute to the process. They often have excellent ideas. Secrecy would forgo many excellent ideas; (2) Investors, creditors, and other stakeholders have a greater basis for supporting a firm when they know what the firm is doing and where the firm is going; (3) Visibility promotes democracy, whereas secrecy promotes autocracy. Domestic firms and most foreign firms prefer democracy over autocracy as a management style; and (4) Participation and openness enhance understanding, commitment, and communication within the firm.

There are several reasons why some firms prefer to conduct strategic planning in secret and keep strategies hidden from all but the highest-level executives.

They are: (1) Free dissemination of a firm’s strategies may easily translate into competitive intelligence for rival firms who could exploit the firm given that information; (2) Secrecy limits criticism, second-guessing, and hindsight; (3) Participants in a visible strategy process become more attractive to rival firms who may lure them away; and (4) Secrecy limits rival firms from imitating or duplicating the firm’s strategies and undermining the firm.

The obvious benefits of the visible versus hidden extremes suggest that a working balance must be sought between the apparent contradictions. This balancing act is difficult but essential for the survival of the firm.

Challenge 3: Top-Down or Bottom-Up Strategic Management

Proponents of the top-down approach contend that top executives are the only persons in the firm with the collective experience, acumen, and fiduciary responsibility to make key strategic decisions. 

Bottom-up advocates argue that lower and middle-level managers and employees who will be implementing the strategies need to be actively involved in the process of formulating the strategies to ensure their support and commitment. 

Management must reach a working balance of the two approaches in a manner deemed best for their firms at a particular time, while cognizant of the fact that current research supports the bottom-up approach.

Increased education and diversity of the workforce at all levels are reasons why middle and lower-level managers, and even non-managers, should be invited to participate in the firm’s strategic planning process, at least to the extent that they are willing and able to contribute.

Guideline to Effective Strategic Management

Strategic management must not become a self-perpetuating bureaucratic mechanism.

Rather, it must be a self-reflective learning process that familiarizes managers and employees in the organization with key strategic issues and feasible alternatives for resolving those issues. If the strategy is not working, managers desperately need to know it.

Strategic management must not become ritualistic, orchestrated, or too formal and rigid.

Keep the strategic management process as simple and non-routine as possible. Words supported by numbers, rather than numbers supported by words, should represent the medium for explaining strategic issues and organizational responses.

Strategic management always must eliminate some courses of action in favor of others.

No organization has unlimited resources. No firm can take on an unlimited amount of debt or issue an unlimited amount of stock to raise capital. Therefore, no organization can pursue all the strategies that potentially could benefit the firm. Most organizations can afford to pursue only a few corporate-level strategies at any given time.

Strategic management requires making trade-offs.

Decisions such as long-range versus short-range considerations or maximizing profits versus increasing shareholders’ wealth. Strategy trade-offs require subjective judgments and preferences. In many cases, a lack of objectivity in formulating strategy results in a loss of competitive posture and profitability. Subjective factors such as attitudes toward risk, concern for social responsibility, and organizational culture will always affect strategy-formulation decisions, but organizations need to be as objective as possible in considering qualitative factors.

Strategic planning involves choices that risk resources and trade-offs that sacrifice opportunity. Firms spend resources and focus on a finite number of opportunities in pursuing strategies to achieve an uncertain outcome in the future. Strategic planning is much more than a roll of the dice; it is a wager based on predictions and hypotheses that are continually tested and refined by knowledge, research, experience, and learning.

Organizations cannot do too many things well because resources and talents get spread thin and competitors gain advantages. In large, diversified companies, a combination strategy is commonly employed when different divisions pursue different strategies.

Resources

Further Reading

Related Concepts

1. Business Objectives and Strategies

References

1. Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
2. Mastering Strategic Management. (2016, January 18). Open Textbooks for Hong Kong.
3. Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice Hall.