Hello Friends, Today, we are going to discuss Meaning, Features, Importance, and Levels of Strategic Management. We already write some articles about Business Environment. It is a series of comprehensive guides for the establishment of entrepreneurship ventures. If You don’t know about the business Environment Please read once. Let’s start with some basics of strategy.
What is strategy?
The term strategy is derived from a Greek word ‘Strategos’ which means generalship – the actual direction of force, as distinct from the policy governing its deployment. The strategy is a broad game plan to achieve objectives. It provides direction and scope to the organization over the long term. Literally the word strategy means the art of the general. Strategy can be defined as the management action plan for achieving the chosen objectives.
It commits the organization to specific products, markets, resources, and technology. It specifies how the organization will be operated, run & what entrepreneur, competitive & functional area approach & action will be taken to put the organization into the desired position. The strategy considers both means & ends.
The goals & decisions making up an organization’s strategy may be planned ahead of time or may just evolve as a pattern in the stream of significant decisions. It determines the basic long term goals & objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
According to Chandler, Strategy in the area of business is defined as
The determination of the basic, long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for those goals.Chandler
Thus, Strategy is a process of translating perceived opportunity into successful outcomes, by means of purposive action sustained over a significant period of time.
Characteristics of strategy
- Long term focus
- Comprehensive action plan
- Competitive advantage
- Stakeholder expectation
- Strategic fit
- Based on strategic decisions: unique, consequential, contradictory action and directive
Levels of Strategy
All organizations should carry out some forms of strategic management. As the organization becomes larger and more complex, there is a greater need for involvement in the strategic process at all levels of an organization. Therefore, more strategic activities will occur in a decentralized way, as each department or business unit attempts to carry out their own part of the strategy.
Organizational strategies include strategies at the corporate level, business level, and functional level. Managers at the top level of the organization typically are responsible for corporate-level strategies. Managers at the middle level typically are responsible level strategies. And managers at the lower levels of the organization typically are responsible for the functional level strategies. Jonson and Schools have identified three levels of strategic activities.
Corporate level strategy
It is the overall strategy for the organization. It provides long term direction & scope to the organization as a whole. It seeks to determine what business the organization should be in. It involves strategic decisions. It allows from mission & objectives.
It is mainly concerned with the overall purpose & scope of an organization & how value will be added to the different parts of the organization. It reflects the direction in which the organization is going and the roles that each business unit in the organization will play in pursuing that direction. The corporate strategy consists of strategic planning at the corporate level and does not limit to one particular area such as marketing, production financial, etc. it is the sense of direction for the entire corporate group.
The corporate level strategy should include
- Concentration: In a single business for e.g. fast food.
- Geographic expansion: New segments to be served in new areas.
- Diversification: Of products, services, business units from current markets.
- Growth & Stability: Through the merger, acquisition, reengineering, downsizing, rightsizing, strategic alliances.
- Resource allocation: Among various business units.
Major corporate strategies are
- Growth strategy: it is a corporate level strategy that seeks to increase the organization’s business by expanding the number of products offered or markets served.
- Product development: Substantial modification of existing products in the existing market.
- Market development: Choice of product in new market segments.
- Innovation: Totally new product development with a new life cycle for the existing market.
- Stability strategy: it is a corporate level strategy characterized by an absence of significant change. Examples of this strategy include continuing to serve the same clients by offering the same product or service, maintaining market share, and sustaining the organization’s return-on-investment results.
- Renewal strategy: it is a corporate strategy designed to address organizational weaknesses that are leading to performance decline. In this stage, management cuts costs and restructures organizational operations.
Thus, we can say that corporate strategy is concerned with the scope of an organization’s activities and the matching of these to the organization’s environment, its resource capabilities and the value and expectations of its various stakeholders.
Business level Strategy
It is an organizational strategy that seeks to determine how an organization should compete in each of its businesses. It allows from the corporate-level strategy. It is concerned with the strategic business unit. Large organizations operate several businesses. It defines its business portfolio.
It classifies its business into a strategic business unit (SBU). Such classification is generally based on the product category. BLS seeks the answer the question, how should we complete in each of our businesses? For a small organization or the large organization that has not diversified into different products or markets, the business level strategy overlaps with the organization’s corporate strategy.
In multiple or diversified business organizations, each division will have its own strategy that defines the products or services it will offer, the customers it wants to reach, and the like. Therefore, this strategy usually occurs at the business unit or product level, and it emphasizes the improvement of the competitive position of a company’s products or services in the industry or market segment served by that business unit.
Business level Strategy should include
- Positioning: It is the positioning among competitors in a given business to gain competitive advantages.
- Low-cost leader: minimizing the cost than competitors by perfecting the value-chain activities
- Differentiation: reconfiguring the resources in some unique way to achieve differentiation.
- Speed based strategy: build around functional capabilities and activities that allow the company to meet customer needs directly or indirectly more rapidly than its main competitors.
- Market focus: market niche by minimizing cost or differentiation or both.
Functional Level Strategy
It follows from the business-level strategy. It is concerned with how the component parts of an organization deliver effectively the corporate & business-level strategies in terms of resources, processes & people. It spells out specific tasks. It is concerned with a strategy for each function, such as production, marketing, finance, human resource, resource & development. It deals with the operations of the organization. It supports the business-level strategy. It involves tactical decisions to achieve strategic advantages.
The functional level strategies also value to a product. Value can be added by lowering cost or differentiating products. They serve as the key to the success of business-level & corporate-level strategies. They aim to attain superior efficiency, quality, innovation & responsiveness to customer needs. It is concerned with developing and looking after competence to provide a company or business unit with a competitive advantage.
Functional level strategy should include
- Objectives: For a specific function, such as marketing.
- Resource allocation: For sub-function of a function, such as product, price, place, promotion of marketing function.
Types of Functional level Strategy
- Production Strategies: They focus on improving efficiency & controlling costs. They deal with plant technology, plant capacity, plant layout & location, production system & processes, maintenance, inventory & quality.
- Marketing Strategies: They focus on customer need satisfaction. They deal with the target, market mix, product positioning & management of product life cycle.
- Finance Strategies: They focus on increasing shareholder’s wealth. They deal with financial planning, sources of finance, investment decisions, dividend decisions, & financial control. The profit potential of various strategic alternatives is assessed.
- Human Resource Strategies: They focus on the quality, competence, productivity & welfare of employees. They deal with the acquisition, development, utilization & maintenance of employees.
- Research & Development Strategies: They focus on product development. They deal with product innovation, modifications & imitations.