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Strategic Management Process

Strategic Management & Strategic Planning

Process
Ovidijus Jurevicius | February 13, 2013

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Denition
Strategic management process is a method by which managers conceive of and
implement a strategy that can lead to a sustainable competitive advantage.[1]
Strategic planning process is a systematic or emerged way of performing strategic
planning in the organization through initial assessment, thorough analysis, strategy
formulation, its implementation and evaluation.

What is that strategic planning process?

The process of strategic management lists what steps the managers should take to
create a complete strategy and how to implement that strategy successfully in the
company. It might comprise from 7 to nearly 30 steps[4] and tends to be more formal in
well-established organizations.
The ways that strategies are created and realized dier. Thus, there are many dierent
models of the process. The models vary between companies depending upon:
Organizations culture.
Leadership style.
The experience the rm has in creating successful strategies.
All the examples of the process in this article represent top-down approach and belong
to the design school.

Components of strategic planning process

There are many components of the process which are spread throughout strategic
planning stages. Most often, the strategic planning process has 4 common phases:
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strategic analysis, strategy formulation, implementation and monitoring (David[5],

Johnson, Scholes & Whittington[6], Rothaermel[1], Thompson and Martin[2]). For clearer
understanding, this article represents 5 stages of strategic planning process:
Initial Assessment
Situation Analysis
Strategy Formulation
Strategy Implementation
Strategy Monitoring

Initial Assessment
Components: Vision statement & Mission statement
Tools used: Creating a Vision and Mission statements.
The starting point of the process is initial assessment of the rm. At this phase managers
must clearly identify the companys vision and mission statements.
Business' vision answers the question: What does an organization want to become?
Without visualizing the companys future, managers wouldnt know where they want to
go and what they have to achieve. Vision is the ultimate goal for the rm and the
direction for its employees.
In addition, mission describes companys business. It informs organizations stakeholders
about the products, customers, markets, values, concern for public image and employees
of the organization (David, p. 93)[5]. Thorough mission statement acts as guidance for
managers in making appropriate (Rothaermel, p. 34)[1] daily decisions.

Situation Analysis
Components: Internal environment analysis, External environment analysis and
Competitor analysis
Tools used: PEST, SWOT, Core Competencies, Critical Success Factors, Unique Selling
Proposition, Porter's 5 Forces, Competitor Prole Matrix, External Factor Evaluation
Matrix, Internal Factor Evaluation Matrix, Benchmarking, Financial Ratios, Scenarios
Forecasting, Market Segmentation, Value Chain Analysis, VRIO Framework
When the company identies its vision and mission it must assess its current situation in
the market. This includes evaluating an organizations external and internal environments
and analyzing its competitors.

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During an external environment analysis managers look into the key external forces:
macro & micro environments and competition. PEST or PESTEL frameworks represent all
the macro environment factors that inuence the organization in the global environment.
Micro environment aects the company in its industry. It is analyzed using Porters 5
Forces Framework.
Competition is another uncontrollable external force that inuences the company. A
good example of this was when Apple released its IPod and shook the mp3 players
industry, including its leading performer Sony. Firms assess their competitors using
competitors prole matrix and benchmarking to evaluate their strengths, weaknesses
and level of performance.
Internal analysis includes the assessment of the companys resources, core competencies
and activities. An organization holds both tangible resources: capital, land, equipment,
and intangible resources: culture, brand equity, knowledge, patents, copyrights and
trademarks (Rothaermel, p. 90)[1]. A rms core competencies may be superior skills in
customer relationship or ecient supply chain management. When analyzing the
companys activities managers look into the value chain and the whole production
process.
As a result, situation analysis identies strengths, weaknesses, opportunities and threats
for the organization and reveals a clear picture of companys situation in the market.

Strategy Formulation
Components: Objectives, Business level, Corporate level and Global Strategy Selection
Tools used: Scenario Planning, SPACE Matrix, Boston Consulting Group Matrix, GEMcKinsey Matrix, Porters Generic Strategies, Bowmans Strategy Clock, Porters
Diamond, Game Theory, QSP Matrix.
Successful situation analysis is followed by creation of long-term objectives. Long-term
objectives indicate goals that could improve the companys competitive position in the
long run. They act as directions for specic strategy selection. In an organization,
strategies are chosen at 3 dierent levels:
Business level strategy. This type of strategy is used when strategic business units
(SBU), divisions or small and medium enterprises select strategies for only one
product that is sold in only one market. The example of business level strategy is well
illustrated by Royal Eneld rms. They sell their Bullet motorcycle (one product) in
United Kingdom and India (dierent markets) but focus on dierent market
segments and sell at very dierent prices (dierent strategies). Firms may select
between Porters 3 generic strategies: cost leadership, dierentiation and focus

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strategies. Alternatively strategies from Bowmans strategy clock may be chosen

(Johnson, Scholes, & Whittington, p. 224[6]).
Corporate level strategy. At this level, executives at top parent companies choose
which products to sell, which market to enter and whether to acquire a competitor or
merge with it. They select between integration, intensive, diversication and
defensive strategies.
Global/International strategy. The main questions to answer: Which new markets to
develop and how to enter them? How far to diversify? (Thompson and Martin, p.
557[2], Johnson, Scholes, & Whittington, p. 294[6])
Managers may choose between many strategic alternatives. That depends on a
companys objectives, results of situation analysis and the level for which the strategy is
selected.

Strategy Implementation
Components: Annual Objectives, Policies, Resource Allocation, Change Management,
Organizational chart, Linking Performance and Reward
Tools used: Policies, Motivation, Resistance management, Leadership, Stakeholder
Impact Analysis, Changing organizational structure, Performance management
Even the best strategic plans must be implemented and only well executed strategies
create competitive advantage for a company.
At this stage managerial skills are more important than using analysis. Communication in
strategy implementation is essential as new strategies must get support all over
organization for eective implementation. The example of the strategy implementation
that is used here is taken from Davids book, chapter 7 on implementation[5]. It consists of
the following 6 steps:
Setting annual objectives;
Revising policies to meet the objectives;
Allocating resources to strategically important areas;
Changing organizational structure to meet new strategy;
Managing resistance to change;
Introducing new reward system for performance results if needed.
The rst point in strategy implementation is setting annual objectives for the companys
functional areas. These smaller objectives are specically designed to achieve nancial,
marketing, operations, human resources and other functional goals. To meet these goals
managers revise existing policies and introduce new ones which act as the directions for
successful objectives implementation.

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The other very important part of strategy implementation is changing an organizational

chart. For example, a product diversication strategy may require new SBU to be
incorporated into the existing organizational chart. Or market development strategy may
require an additional division to be added to the company. Every new strategy changes
the organizational structure and requires reallocation of resources. It also redistributes
responsibilities and powers between managers. Managers may be moved from one
functional area to another or asked to manage a new team. This creates resistance to
change, which has to be managed in an appropriate way or it could ruin excellent
strategy implementation.

Strategy Monitoring
Components: Internal and External Factors Review, Measuring Companys
Performance
Tools used: Strategy Evaluation Framework, Balanced Scorecard, Benchmarking
Implementation must be monitored to be successful. Due to constantly changing
external and internal conditions managers must continuously review both environments
as new strengths, weaknesses, opportunities and threats may arise. If new circumstances
aect the company, managers must take corrective actions as soon as possible.
Usually, tactics rather than strategies are changed to meet the new conditions, unless
rms are faced with such severe external changes as the 2007 credit crunch.
Measuring performance is another important activity in strategy monitoring.
Performance has to be measurable and comparable. Managers have to compare their
actual results with estimated results and see if they are successful in achieving their
objectives. If objectives are not met managers should:
Change the reward system.
Introduce new or revise existing policies.
The key element in strategy monitoring is to get the relevant and timely information on
changing environment and the companys performance and if necessary take corrective
actions.

Dierent models of the process

There is no universal model of the strategic management process. The one, which was
described in this article, is just one more version of so many models that are established
by other authors. In this section we will illustrate and comment on 3 more well-known

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frameworks presented by recognized scholars in the strategic management eld. More

about these models can be found in the authors books.
Figure 1. Davids Model of the Strategic Managements Process

ModeloftheStrategicManagementProcess

External
Environment
Analysis
DevelopVision
andMission
Statements

Establish
LongTerm
Objectives

Generate,
Evaluate,and
Choose
Strategies

Implement
Strategies

Measureand
Evaluate
Performance

Internal
Environment
Analysis

StrategyFormulation

Strategy
Implementation

Strategy
Evaluation

Source: David (p. 46)

Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Steps
1. Develop vision and mission
2. External environment analysis
3. Internal environment analysis
4. Establish long-term objectives
5. Generate, evaluate and choose strategies
6. Implement strategies
7. Measure and evaluate performance
Benets
Indicates all the major steps that have to be met during the process.
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Illustrates that the process is a continuous activity.

Arrows show the two way process. This means that companies may sometimes go a
step or two back in the process rather than having to complete the process and start
it all over from the beginning. For example, if in the implementation stage the
company nds out that the strategy it chose is not viable, it can simply go back to the
strategy selection point instead of continuing to the monitoring stage and starting
the process from the beginning.
Drawbacks
Represents only strategy formulation stage and does separate situation analysis from
strategy selection stages.
Confuses strategy evaluation with strategy monitoring stage.
Figure 2. Rothaermels The Analysis-Formulation-Implementation (AFI) Strategy
Framework

TheAFIStrategyFramework
InitialAnalysis

Implementation
Gaining&
Sustaining
Competitive
Advantage

Externaland
Internal
Analysis

F ormulation:

F ormulation:

Corporate
Strategy

Business
Strategy

Source: Rothaermel (p. 20)

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Stages
Analysis
Formulation
Implementation
Steps
1. Initial analysis
2. External and internal analysis
3. Business or corporate strategy formulation
4. Implementation
Benets
Shows that the process is a continuous activity.
Separates initial analysis (in this articles its called initial assessment) from
internal/external analysis.
Emphasizes the main focus of strategic management: Gain and sustain competitive
advantage.
Drawbacks
Does not include strategy monitoring stage.
Arrows indicate only one way process. For example, after the strategy formulation
the process continues to the implementation stage while this is not always the truth.
Companies may go back and reassess their environments if some conditions had
changed.
Figure 3. Thompsons and Martins Strategic Management Framework

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StrategicManagementFramework
Wherearewe?

Howarewe
doing?

Situation
appraisal:review
ofcorporate
objectives

Situation
assesment
e.g.SWOT

Monitor
progress

Clarification
ofobjectives

Implementation

Corporate
strategy

Howarewe
gettingthere?

Strategic
Decisions

Competitive
Strategies

Wherearewe
going?

Source: Thompson and Martin (p.36)

Stages
Where are we?
Where are we going?
How are we getting there?
How are we doing?
Steps
1. Situation appraisal: review of corporate objectives
2. Situation assessment
3. Clarication of objectives
4. Corporate and competitive strategies
5. Strategic decisions
6. Implementation
7. Monitor progress
Benets
Indicates all the major steps that have to be met during the process.
Shows that the process is a continuous activity.
The model is supplemented by 4 fundamental strategic management questions.
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Drawbacks
Arrows indicate only one way process.

Limitations
It is rare that the company will be able to follow the process from the rst to the last step.
Producing a quality strategic plan requires time, during which many external and even
internal conditions may change. This results in the awed strategic plan which has to be
revised, hence requiring even more time to nish.
On the other hand, when implementing the strategic plan, the actual results do not meet
the requirements of the strategic plan so the plan has to be altered or better methods for
the implementation have to be discovered. This means that some parts of strategic
management process have to be done simultaneously, which makes the whole process
more complex.

Sources
1. Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. McGrawHill/Irwin, p. 20, 32-45, 90
2. Thompson, J. and Martin, F. (2010). Strategic Management: Awareness & Change. 6th
ed. Cengage Learning EMEA, p. 34, 557, 790
3. Clark, D. N. (1997). Strategic management tool usage: a comparative study. Strategic
Change Vol. 6, pp. 417-427
4. David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice
Hall, p. 36-37, 45-47, 93
5. Johnson, G, Scholes, K. Whittington, R. (2008). Exploring Corporate Strategy. 8th ed. FT
Prentice Hall, p. 11-13, 224, 294
6. Virtual Strategist (2012). Overview of the Strategic Planning Process (VIDEO). Available
at: http://www.youtube.com/watch?v=sU3FLxnDv_A

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