In this report an explanation about the strategic management process will be given, utilizing the model illustrated below. Firstly, the different elements will be explained followed by a clarification of the different relationships, in terms of impact, between them. First of all, an explanation about strategic management is given. According to Fred R. David, strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. Additionally, four stages could be defined in the strategic management process: environmental scanning, strategy formulation, strategy implementation, and strategy evaluation. Lastly, a good strategic plan is required to compete effectively in the market.
Explanation of the elements
The mission of a company can be described in various ways. According to Wheelen & Hunger (2008), the purpose or reason for the company to exist is defined in the mission statement. Moreover, it presents what an organization is providing to society in terms of products offered and markets served. Though, Jones & Hill (2008) showed a more detailed explanation about the company’s mission in which four major elements are described. Namely, the reason of existence (mission) of a company, a desirable future position (vision), the key values of the company, and its major goals. This is in line with Wheelen & Hunger (2008) and Mary Coulter (2008), who described a company’s vision as what the company would like to become in the future. Additionally, the mission statement of a company could be either product-oriented or customer-oriented.
Consequently, product-oriented mission statements are rather focused on the products sold and the markets served instead of satisfying the customer needs. As a result, customer-oriented mission statements are focusing on meeting or satisfying the customer needs. Moreover, defining a company’s mission statement is dependent on various aspects such as the type of firm, the scope of operating, products offered, and customers or markets served (Wheelen & Hunger, 2008). Eventually, a good mission statement should answer three questions: What is our business? What will it be? And what should it be? (Jones & Hill, 2008). Consequently, questions such as what the customer groups are or customers’ needs, and how these customers are satisfied are answered. Lastly, according to Lynch (2009), a mission statement also takes the values and expectations of the stakeholder into consideration.
In a company profile a description of a company is given covering certain aspects such as the history of the company, employee information, products and services offered, revenue analysis, locations, competitors, SWOT analysis and so on. In relation to strategic management, in terms of developing or reviewing strategies, an internal analysis reflects a realistic company profile. According to Coulter (2008), an internal analysis starts by reviewing a company’s resources, capabilities, and competencies. A resource is the input in a production process which is transformed by capabilities into products and services offered. “The resources of an organisation include its human resource skills, the investment and the capital in every part of the organisation” (Lynch, 2009) Additionally, resources can be either tangible or intangible. “Tangible resources are the phsyical assets of an organisation such as plant, people, and finance. Intangible resources are non-physical assets such as information, reputation, and knowledge” (Johnson, Scholes, & Whittington, 2008)
Then, “capabilities (knowledge, skills, and competences) refer to the company’s ability to make use of its resources in a highly productive way” (Coulter, 2008). Resources and capabilities can both lead to competitive advantage. On the other hand, resources and capabilities can as well be imitated. Eventually, when capabilities lead to added value of products and services which other companies cannot exceed and competitive advantage, the capabilities are referred to as distinctive capabilities.
Lastly, these capabilities can represent a company’s core competencies when four basic requirements are met: capabilities should be valuable and rare (guests’ point of view), costly to imitate (by the competition), and non-substitutable (on the part of the competition) (Coulter, 2008). As a result, the strengths of the company are resources, capabilities, and core competencies that lead to competitive advantage. The weaknesses are resources and capabilities a company does not have to keep up with competitors and thus, representing a competitive disadvantage to the company. Lastly, the strengths and weaknesses can be utilized to evaluate whether a company can deal with the weaknesses and threats in the external environment.
According to Coulter (2008), there are three types of environments that should be analyzed when assessing the external environment being namely the industry environment, the country or national environment, and the wider socioeconomic or macro environment. The industry environment is the environment in which the company is operating. Thus, there is particularly looked at the competitors of the company, the position of the company itself in the market, and also the history of the industry is taken into consideration. Additionally, the country or national environment is assessing the impact of globalization. As a result, it may become clear in order to be competitive or profitable, a company should move its production to somewhere else or it should be aware of new competition from abroad entering the market.
Furthermore, the wider socioeconomic or macro environment considers aspects such as government, legal aspects, technological factors and other factors that could affect the company and industry. As a result of assessing the external environment, the opportunities and threats of a company can be defined. Opportunities allow a company to take advantage of their strengths, minimize weaknesses, and neutralize environmental threats. Finally, the threats may hinder a company to gain competitive advantage or satisfy their stakeholders. Thus, there should be elaborated on strengths in order to minimize the company’s threats.
Strategic analysis and choice
“Strategic analysis and choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions in which the strategy might move and the methods of development.” (Johnson, Scholes, & Whittington, 2006). Once a company’s strategy has been elaborated on, it is necessary to analyze it and to choose the strategy that suits best for the company’s intention. First of all, it is decisive to indicate the business’ competitive advantage in order to understand in which way the company can compete within its competitive set. Additionally, decisions concerning the corporate-level strategy such as the company’s profile, products, and businesses have to be analyzed.
Moreover, the strategy can develop differently in the future and therefore, needs to be carefully considered. Objectives: According to Johnson, Scholes and Whittington (2006), objectives can be described as statements of specific outcomes that are to be achieved. Objectives are often expressed in financial terms like desired sales or profit levels, and rates of growth. Additionally, companies also have objectives based on the market like market share, and customer service.
Overall, objectives are more precise aims in line with the goals, which are in line with the mission of a company. Furthermore, objectives can be divided into two categories, namely long-term objectives and annual objectives. Long-term objectives can be determined as goals made on a corporate-level in a multiple-business firm. These objectives describe goals for several years, and are therefore called long-term. The annual objectives are part of the long-term objectives. Moreover, the long-term objectives are translated in annual objectives on a functional level of a multiple-business firm.
The grand strategy occurs after the long term objectives, the grand strategy is more measurable and accurate. Within the grand strategy is defined what the company’s long term plans and objectives are. In this strategy, the organizational development and divestiture and diversification are the key factors. Grand strategies are often seen as the basic direction for strategic actions and it indicates the time period over which long-range objectives are to be achieved. The companies that are in the multiple industries, business product lines or customer groups usually combine the several grand strategies. (Wheelen & Hunger, 2008) pointed out that there are three general directional orientations that are often called the grand strategies.
This are the: growth strategies, stability strategies and the retrenchment strategies. The growth strategies can be defined into internal growth and external growth. With internal growth can be included the development of products and with external growth is diversification involved. The stability strategies can be chosen to remain the same size or to grow in a controlled time. With the retrenchment strategies a company goes through a period of forced economized. One of these different grand strategies could serve as the basic for achieving the long term objectives.
Functional strategy is the approach of a functional area to achieve corporate and business unit objectives and strategies. It is concerned with developing a distinctive competence to provide a company or a business unit with a competitive advantage. Every department on a functional level has its own functional strategies. This means that there are more functional strategies within a company, the number of different strategies is depending on the number of functional levels such as HRM, F&B department and Rooms division department. According to Mintzberg every functional strategy exists out of different functional objectives.
The functional objectives that formulated the functional strategy are as following: Profitability, market share, human talent, financial health, cost efficiency, product quality, innovation and social responsibility. Furthermore functional strategies exist out of the core competency, the core competency can be something where the company distinguishes itself, and core competency can also lead to a core capability. When the core competency and core capability are superior to those of the completion it becomes a distinctive competency of the functional strategy.
According to Mintzberg, policies are rules and guidelines that express the limits according to which certain procedures should be executed. The policies are seen as an important factor in the strategy implementation, where it represents a guideline to decision making and addresses repetitive situations. Furthermore it gives consistency and coordination, especially between organizational departments. Company objectives can support the policies. Mintzberg defines that policies are development to guide the companies, where different companies are executives who spend more time in arbitrating the disputes caused by stated polices, instead of moving the company forward.
Well-defined policies are the support of a well-managed company. Policies are developed after a wide range of operational decisions. From several operational decisions might occur minor dimension of the policy of the companies understanding, form series of decisions a pattern and guidelines are created where this will lead in to creating the policies (?). Policies that guide the overall direction of the company’s entity are strategic policies. Institutionalizing the strategy
Before implementing the strategy it is necessary to involve all of the employees within the company. Thomson (2007) describes that every work group, department, and division of the organization must describe to and support the organization’s strategy with its plans and actions. Institutionalizing the strategy is one step before implementing the strategy, strategic leaders need to involve the employees to motivate and stimulate them. (Wooldridge, 2003) describes that middle management has to most influence to involved the operational level within a company(?). The strategy needs to be explained and understood to motivate and stimulate the employees. Assigning employees to the value of the specific task will increase the quality, innovations and response towards customers.
Before implementing, the strategy needs to be fully understood by the employees, and therefore feedback can be given. It is necessary to receive feedback, the external environment changes within time. While receiving feedback and keep in mind that the strategy needs to adjusted to the external environment the strategy could change. Feedback can be based on the corporate level but also on the functional level. Implementing the strategy trough structure and culture is difficult and a never ending task. The corporate level has different opinions and feedback towards the strategy than the functional level, it also depends within the culture where the strategy needs to be implemented. To combine these feedbacks it is necessary to have a good fit between these levels.
Control and evaluation
Control and evaluation is the final step of implementing the strategy process, hereby strategy could be measured and analyzed if it is successful. Okumus (2003) describes control and feedback refers to the formal and informal mechanisms that allow the effort and results of implementation to be monitored and compared against predetermined objectives. The control and evaluation could lead to an outcome, it has intended and unintended results of the implementation process. These can be tangible and intangible The process will lead to an evaluation Okumus (2003) has made an process table which will ask the company questions after evaluating the strategy.
Okumus (2003) describes the strategy process after the evaluations issues and it can be considered whether the new strategy has been implemented according to the plan, whether predetermined objectives have been achieved, if the performance outcomes are lead to the company satisfaction and if the company learned anything from the strategy. Strategy is designed to gain more revenue, which increases the company performance.
Relationships between the different elements
“The Strategic management is defined as the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives. A Strategic Management process is the flow of information through interrelated stages of analysis toward the achievement of an aim.” (Pearce & Robinson, 2005). The model of the strategy formulation process as introduced in the introductory lecture of the module Strategic Hospitality Management contains eleven components and displays one of the prevalent versions of the model most frequently utilized in strategic management. The first element being located on top of the model is the company’s mission. Developed further from the company’s vision, the mission represents the starting point for the selection of appropriate strategies. Being strongly influenced by the external environment and the company’s profile, a company’s mission supports management in strategic analysis and choosing appropriate strategies. Accordingly, management needs to consider what type of strategy would be possible and what is actually desired to be achieved by the company. Long-term objectives and Grand strategy are the result of strategic analysis and choice.
Long-term objectives can be better determined as goals that were established on the corporate level of a multiple-business firm. Annual objectives result from the long-term objective and serve as some kind of step-by-step approach in order to record short-term achievements that contribute to the success of the company’s long-term objective. These objectives are handed down to the strategic business unit level. At this stage, long-term objectives are converted into a Grand strategy –more measurable and clearly defined. On the functional level of a multiple-business firm, strategies are actually carried out and annual objectives are tried to be achieved.
In dependence on policies and procedures, strategies are thoroughly institutionalized flowing into the final implementation of the company’s strategy. Control and evaluation is the final element of the strategy formulation process referred to in this explanation of the relationship between the different components. It indicates the internal observation and measurement of how effective and successful the newly implemented strategy is. “The strategic-management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components.” (David, Benefits of Strategic Management, 2001) The above stated quote refers to the feedback which is part of that continuous process in implementing successful strategies.
On one hand, feedback can be based on the company’s control and evaluation of the strategy which relates its outcomes back to the company’s profile and mission. Improvements can be suggested and aimed for on all levels of the multiple-business firm, but especially on corporate level as it represents the approving organ of a firm. On the other hand, feedback will arise at the stage of institutionalizing the strategy provided by the company’s very inner circle of employees –the functional level.
Thorough institutionalization should prevent negative feedback in order to protect the external environment from a harmful impression. Concluding, the implementation of a new strategy requires careful preparation and involvement of all parties concerned. A strategy can fail if not all parties involved act in concert. Therefore, literature states that the implementation of a new strategy requires “(…) personal discipline, commitment, and sacrifice.” (Wheelen & Hunger, 2008).
Literature provides several versions of the strategic management model, but the underlying theory is constantly the same: “Strategic management allows an organization to be more proactive than reactive in sharpening its own future; (…)” (David, Benefits of Strategic Management, 2001). How the single components are named and arranged can slightly differ, but basically the model reveals a great guideline and names all elements and parties involved that have to be taken into account when considering the establishment of a new strategy. Furthermore, it is most decisive to understand that strategy formulation, implementation and evaluation activities might need to be adapted on a regularly basis and not only (semi-)annually (David, The Strategic-Management Model, 2001).
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